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Meet Tony Shepherd, Transfield’s doyen of debt

Tony Shepherd, charged with finding ways for the Commonwealth to pay down debt, knows plenty about debt, and not so much about paying it down, Glenn Dyer and Bernard Keane write.

Tony Shepherd

It is … essential that the Commonwealth government live within its means and begin to pay down debt,” declare the terms of reference for the Commission of Audit announced by Treasurer Joe Hockey in October.

Fair enough, even if Hockey wants more debt at the moment, not less. But Hockey’s hand-picked commission chairman, Business Council head Tony Shepherd, is in a slightly difficult position on that score.

As we’ve pointed out in the past, Shepherd was appointed deputy chair of construction company Transfield in 2001 and was its chairman from 2005 until October. He’s presided over hundreds of millions of dollars of losses on poorly designed purchases in the United States and Australia, thousands of job cuts and, like many other companies, emergency cash raisings during the GFC.

There he was this morning on page one of The Australian Financial Review, jovially shaking the hand of Prime Minister Tony Abbott, and on the front page of The Australian’s business section, leading Abbott and others into the 30th anniversary dinner of the Business Council of Australia.

But buried on page 15 of the AFR was a devastating report. Transfield’s debt levels have soared 15% or more in the six months to June 30 this year to $566 million, a rise of $75 million. Nearly half that amount was due to be repaid to a syndicate of banks in December 2014.

Transfield, like many other service companies, has been badly hit by the downturn in the mining sector; companies like WorleyParsons (much bigger than Transfield), UGL and Leighton have all reported lower revenues and profits as a result of the downturn. The damage from the slowdown is spreading; small Perth contractor Forge Group was last week bailed out by ANZ, which decided risking more than $60 million was better than Forge going under. And Ausenco, another Perth contractor, is raising around $31 million to try and stave off a fate similar to that of Forge.

Transfield’s balance sheet was over-geared, according to analysts. It has sacked 20 senior staff in the past couple of weeks, including its head of investor relations, and there’s speculation consultants have been tapped to investigate options to manage the company’s debt.

Among the consultants is the advisory arm of KordaMentha, used by ANZ Bank on Forge to look at options for that company as it failed to convince investors to take shares to raise urgently needed cash. Transfield is nowhere near Forge’s position, but the fact that it is being openly speculated about in the media tells us the situation must be tough and the mess left behind by Shepherd is pretty substantial. As chairman of Transfield, Shepherd presided over the abandonment of dividend payments to shareholders to preserve cash.

In the latest year Transfield posted a net profit of $65.5 million before impairments and amortisation. But after write-offs and impairments, the year to June net loss was $254.4 million, a reversal from the net profit of $96.4 million a year ago, forcing the group to pass on payment of a final dividend. The Transfield board, led by Shepherd, agreed to what one analyst called an “ill-timed” $85 million buyback in late 2011, designed to lift the company’s appeal to investors, which lasted a year before being ended as the cash drain became too much, wasting money that could have been used to pay down debt.

Pay down debt.” Indeed. The Business Council under Shepherd is constantly urging governments to “pay down debt”. Its budget submission earlier this year is riddled with demands that the government get on with “paying down debt”. Transfield investors might be wondering why Shepherd didn’t take his own advice — and how much use his counsel will be to the government.

7
  • 1
    condel
    Posted Thursday, 5 December 2013 at 4:25 pm | Permalink

    Apples and Oranges

  • 2
    Rod Marr
    Posted Thursday, 5 December 2013 at 7:39 pm | Permalink

    The damage from the slowdown is spreading; small Perth contractor Forge Group was last week bailed out by ANZ, which decided risking more than $60 million was better than Forge going under. And Ausenco, another Perth contractor, is raising around $31 million to try and stave off a fate similar to that of Forge.”

    Jesus!.. Bernard and Glenn, how do you find this stuff out?

  • 3
    Jimmyhaz
    Posted Friday, 6 December 2013 at 11:26 am | Permalink

    This rubbish about paying down debt is going to destroy the Australian economy, either the public sector or the private sector will have to go into debt so expansion can continue, and I think that it is infinitely preferable to have the sector that cannot default and has the capability to print as much money as is required take it on.

  • 4
    Daly
    Posted Friday, 6 December 2013 at 2:08 pm | Permalink

    The Right agenda: shrink the public sector to nothing while diverting any comment on the huge handouts to business. Paid for by increases in taxing the poorest Australians while keeping the Rory’s for the rich intact: eg superannuation.

  • 5
    Daly
    Posted Friday, 6 December 2013 at 2:09 pm | Permalink

    Sorry, rorts.

  • 6
    Jimmyhaz
    Posted Friday, 6 December 2013 at 2:57 pm | Permalink

    That’s exactly what the ‘conservative right’ has been about at heart since the days of Thatcher and Reagan. It is entirely about reverse wealth distribution, taking from the poor to give to the rich. Any true ‘fiscal conservative’ would realise that slashing lower-class welfare is far more harmful to the economy than raising taxes on the rich, but then again the coalition has not been truly fiscal conservative since Fraser.

  • 7
    David Hand
    Posted Friday, 6 December 2013 at 4:54 pm | Permalink

    Transfield’s woes, driven mainly by the downturn in the resources sector, has absolutely nothing to do with government debt.

    In either case, paying down debt is smart and wise. Sure, go into debt to invest and that’s what we all do. Then pay it off. The stupidest thing to do is to run up debt with no agenda to pay it back. That’s how businesses go under and countries impoverish their people.

    What’s all that got to do with tony Shepherd? Just a smart-arsed hint that he’s not the right guy? Who do you want instead? Hellooo?

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