Probuild has told its national workforce to down tools, with its parent, Johannesburg listed Wilson Bayly Holmes-Ovcon Limited (WBHO), putting the business into administration.
The move comes after four years of financial assistance by WBHO totaling $183.5 million (R2 billion).
“The Australian construction environment has also become increasingly competitive and contractual [and] in our view, the potential risk of large mega building projects outweighs the current margins available,’ a statement said.
“With this in mind, the company has adopted a more conservative bidding strategy focused on lower-risk and less complicated projects,” it added.
“Based on this approach, it was the company’s intention to see some decline in the order book as we reduce our exposure to high-risk projects.
“However, sourcing acceptable projects has been made more difficult with procurement activity and the number of available projects being impacted by COVID-19”.
Probuild, known in financial documents as WBHO Australia, is the second major builder to collapse in the last three months – following ABD Group.
A smaller group, Brisbane based Privium, also went into voluntary administration late last year with debts reported at c$28m.
“The Australian government’s hard-line approach of managing COVID-19 through a combination of border restrictions, snap lockdowns and mandatory work-from-home regulations for many sectors, has had a considerable impact on property markets as well as other industries such as…leisure,” WBHO reported.
“Border restrictions have resulted in hundreds of thousands of foreign students, tourists and investors unable to gain entry to the country,” according to the company.
“Population levels in the two major cities of Melbourne and Sydney have shown negative growth as a result,” it added.
“The impact of lockdown restrictions on the retail, hotel and leisure and commercial office sectors of building markets have created high levels of business uncertainty in Australia and have significantly reduced demand and delayed the award of new projects in these key sectors of the construction industry”.
A shortage in both building materials and staff is also presenting challenges for the local development sector.
National development pipeline
It is understood the loss at one Probuild project – a subtropical apartment complex at 443 Queen Street in Brisbane, is running at $48m, with some sub-contractors reportedly owed hundreds of thousands of dollars.
In Melbourne, the company is constructing CSL’s headquarters at Elizabeth North for PDG, Far East Consortium’s West End, which will contain a Ritz Carlton hotel, Poly Australia’s 1000 La Trobe St and Blackstone’s Caulfield Village.
The distinctive W Hotel at Darling Harbour, as well as Frasers Property Australia’s Midtown project at Macquarie Park are affected Sydney developments (story continues below).
Probuild is also behind The Towers at Elizabeth Quay in Perth.
Its development pipeline is worth $5b based on end value.
Unsuccessful business sale
Probuild employs about 520 people.
Late last year, WBHO found a buyer, China State Construction Engineering Corporation, to pay a c$300m for the company however the deal didn’t proceed when Josh Frydenberg suggested the Morrison would likely reject it on national security grounds.
“Following on from this, WHBO implemented its strategy to downsize the business, and considered other sale options which proved fruitless due to concerns potential acquirers had as to the impact of the regulatory approach to COVID,” the company statement said.
“The Australian businesses have not been able to complete projects on time and not been able to recover variation and delay claims, resulting in material losses in the financial period to date and the requirement for further funding and balance sheet support from WBHO Construction [a subsidiary which holds WBHOA shares],” it added.
“Management have assessed the risk exposure to the group in continuing to support Australia against the risk to the group of discontinuing this financial support.
“After considerable discussion and thought by the board, particularly with regard to the historical performance of WBHOA, the level of risk versus the reward in the Australian construction market and the consequences for all WBHO stakeholders.
“Given that the board can no longer see a strategic imperative to retain WBHOA within the group, and WBHOA has significantly depleted the resources of the group, WBHO has determined that, with effect from 22 February, 2022, the company through WBHOC will no longer provide financial assistance to WBHOA.
“This has led the WHBOA board to commence the application for the administration of WBHOA.
“The company has the support of its South African financial institutions and intends to honour its existing parent company obligation provided to Australian institutions.
“The losses to date, together with the closure for WBHOA and the cost of the parent company obligations will have a significant impact on the company’s consolidated statement of financial position and consolidated statement of financial performance, however…the company remains liquid and the limitation of losses from WBHOA is expected to have a positive effect on the financial position of the company going forward.
“Details of the financial effects of this decision will be available in the half year results to be released on 1 March, 2022”.
Deloitte, set to be announced administrator this week, is expected to seek a buyer.
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