EDI, one of Australia’s largest engineering and mining groups, is the
latest entrant in the annals
of dodgy corporate governance after last night revealing a shock $25
million unaudited loss for the 2005-06
financial year. The news sent shares in the company tumbling $2.46 to
$4.95 this morning as the market wiped its capitalisation by a
staggering 30% or $650 million.

board, led by Lindsay Fox’s long-time lawyer Barry O’Callaghan, asked for a
trading half yesterday and made the announcement
after the market closed at 4pm. O’Callaghan, a former partner at Downer
EDI’s legal provider Corrs Chambers Westgarth, knows plenty about
with the ASX over market disclosures from his days on the Hudson Conway
board when Crown Casino was being built in the 1990s.

Downer EDI had already provided profit guidance for the year of around
million, but left that unchanged, even when there was a $125 million
placement back in May
at $8.40. The substantial institutional shareholders who bought
that stock, such as Axa, Barclays and UBS, would be looking for vengeance today and the class action
lawyers should be coming off the long run.

The loss comprised $163 million of writedowns, although that’s
a net figure. Brokers
are saying that total gross writedowns are in the order of $293

what happened? Well, besides the losses on various mining projects (especially a sand mine for Iluka
Resources in Victoria),
the heads of the company’s mining, engineering, telecom and energy businesses
have all been purged. Sounds like boom time in Moscow back in the 1950s.

in the losses on the contracts and the value lost in the market, you get more
than $900 million all told – an expensive price for poor corporate governance.

will gall shareholders is that when the $125 million UBS-managed
placement was made at $8.40 a share in May, Downer had ample
opportunity to update the market on any
problems. That it chose not to, when there was the exchange of
statements over
the Iluka project at the start of the year, will not sit well.

wants Iluka to pay another $105 million on top of the
$200 million cost of the Victorian project, which has faced a range of
technical and industrial problems from Victoria’s feral construction

is another example where a board and management have fluffed the
easiest thing
known in corporate governance: timely and continuous disclosure.
It’s all very well to purge the management, but the chairman and other
directors will be under pressure to resign as well because this is an absolute shocker reminiscent of the bad old days.

Get Crikey for $1 a week.

Lockdowns are over and BBQs are back! At last, we get to talk to people in real life. But conversation topics outside COVID are so thin on the ground.

Join Crikey and we’ll give you something to talk about. Get your first 12 weeks for $12 to get stories, analysis and BBQ stoppers you won’t see anywhere else.

Peter Fray
Peter Fray
Editor-in-chief of Crikey
12 weeks for just $12.