Major banks are about to disclose a major hit from their doomed loans to the hotel sector with $1 billion worth of lending to pubs in NSW officially in the red ink zone.
As the blame game starts, senior investment executives are being shuffled into other jobs, promoted, demoted or running for the door with redundancy packages under their arms. The once unstoppable pub sector is now in free fall. National Leisure and Gaming Ltd (NLG) was yesterday trading at 4 cents after its 50 cent listing in December 2005.
In those halcyon days, the price of pubs was going through the roof. Investors believed they could make fortunes from the poker machines which the Labor Government had allowed into pubs for the first time in the late 1990s. But the hotel windfall has been broken by four factors:
- The introduction of the smoking ban in pubs in July last year;
- The drop in the use of gaming machines in pubs;
- The higher interest rate regime;
- The general increase in the cost of living from the soaring price of petrol, groceries etc.
The Hedley Leisure & Gaming Property Fund is another debt-laden outfit which is suffering from the downturn. The group’s plans to buy three Thursday Island pubs have ground to a halt as HLG directors wrestle with an outstanding $805 million loan facility with the ANZ and others. Other banks have started a review of all their pub loans to see which are performing and which will have to be placed in the lifeboat.
The crazy days of greedy publicans living high on the hog and borrowing to the hilt to enjoy their exotic lifestyles are well and truly over.
The cancellation of orders for yachts, limousines, penthouses on the Gold Coast and overseas holiday cruises has started.