"The cavalier way Tasmania begs for federal funds then absolutely wastes so much without the slightest concern for due diligence is an embarrassment."Clearly Gunns was insolvent when it approached the banks in September 2012 on bended knees and asked to be able to retain a little more from asset sales and also "that a debt compromise of a material portion of their debt was required to remain viable", to quote the administrator. Gunns was probably insolvent when it received a significant downward revaluation of plantation assets early in July 2012, making asset sales pointless and raising capital almost impossible. And it might have been insolvent in March 2012 when white knight Richard Chandler Corporation exited the data lock-up after half an hour and headed back to Singapore. But Gunns might have been insolvent as early as September 2011, when it received $23 million of inter-government agreement cash. There was $23 million earmarked in the agreement to compensate Gunns, even though it had previously relinquished its contracts, a decision it quickly reversed when a bucket of money loomed as a possibility. The original plan was to pay Gunns $23 million provided the company agreed to pay half to state-owned Forestry Tasmania for amounts owing, as Forestry Tasmania was also insolvent. Gunns dug its heels in, knowing it was in a good bargaining position as the IGA might fall over, and demanded the full $23 million. Funds for Forestry Tasmania had to be found from elsewhere. Gunns needed the money pronto to make a $10 million loan repayment to banks and to start pulp mill earthworks, or else the mill permit would become null and void. It couldn't borrow or raise more equity, asset sales were slow with prices continually falling and bank loans of $340 million were repayable in a few months. If Tom Waterhouse was running a book on the date of insolvency, August 2011 would be well in the market. Gillard and Giddings bailed out an insolvent company. Industry policy is indeed quite accommodating. It proved to be a postponement of the inevitable. The postponement has meant a delay in the restructure of the forest industry and a continuation of mutual mistrust, as inevitably many see the inter-government agreement as simply a front for getting the pulp mill started. Even now the state's upper house is still deciding whether to pass the Tasmanian Forests Agreement Bill, 18 months after the first tranche of cash disappeared into a sinkhole. The cavalier way Tasmania begs for federal funds then absolutely wastes so much without the slightest concern for due diligence is an embarrassment. Hinting that pie-in-the-sky projects are still possible when the Tasmanian forest industry has just suffered balance sheet losses in excess of $2.5 billion -- and 150,000 hectares of plantations are looking for new owners after existing owners have lost 90% -- is mischievous stupidity. *This article was first published at Tasmanian Times
How your taxes bailed out insolvent timber giant Gunns
Gunns might have been trading insolvent when it took $23 million from the federal government for its non-existent pulp mill, writes Tasmanian economist and analyst John Lawrence at Tasmanian Times.