There’s a joke circulating that won’t amuse nervy investors worried about property and developer stocks. How do you spell Multiplex? M-a-i-n-l-i-n-e.
Mainline collapsed in 1974, precipitating the credit squeeze and property collapse triggered by the inflation-first policies of the Whitlam government. On one day, Westpac (then the Bank of NSW) had to go into the money markets for cash and paid more than 20% for overnight funds, and a host of building societies in Queensland and NSW suffered runs, and some collapsed.
Of course it’s premature to compare Multiplex with Mainline, and our financial markets are deeper and much stronger than they were 31 years ago. But there’s still a worry. More than 201 million shares in Multiplex changed hands yesterday – 35% of Multiplex’s issued capital of 568 million shares. The price fell 72c to $2.54 at the close yesterday and recovered 6c to $2.62 this morning.
Banks were weaker yesterday, which partly reflected some reweighting ahead of global index changes and also some nervousness about exposure to Multiplex. In yesterday’s trade the ANZ lost 50c, CBA 48c, NAB 44c and Westpac 34c. The quartet were sold off by nervy investors because of worries about their funding, especially the ANZ which has a $600 million exposure to Multiplex.
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We haven’t been through a significant property slump or crash since the likes of Estate Mortgage and Pyramid collapsed 15 years ago. But one thing is certain: when a big company is in trouble everybody runs for cover because they are afraid of being hurt in the collapse.
Multiplex has a tame in-house property trust, and there’s a lot of co-mingling of money between the two entities. That makes for added complexity, especially when the trust has lent a whopping $770 million. How is that money secured? Is is callable in any way? Is this sum so large because Multiplex hasn’t been able to borrow from the banks except at high interest rates?
The company says it has $200 million in cash and $600 in credit lines: with $770 million owing to the trust, there’s not much left over is there if forced asset sales are required.