Andrew Forrest thrives on his underdog image, but he produced the goods in New York.
”He was a stick-thin station kid … and he was useful in a blue. But in reality, the legend of Twiggy with bloodstained fists brawling with schoolyard bullies twice his size did get a bit out of hand.
”He never shirked a knuckle fight. And there was one celebrated occasion when he did flatten a big bully. But the truth is he was just a nice kid from the country.”
A CONTEMPORARY of Andrew ”Twiggy” Forrest at Perth’s Christ Church Grammar in the 1970s recalls how the mining magnate had a reputation for defending the underdog, which often happened to be himself.
He is now Australia’s most famous underdog. More lately he has been blueing with BHP and Rio Tinto, ASIC, the East Coast institutions and hedge fund short-sellers. Fortescue founder Forrest has taken them all on, and won, while building an $11 billion iron ore empire from scratch in just 10 years.
But this week’s effort was special.
To say that Forrest pulled a rabbit out of his hat is far too modest a metaphor.
Somebody damaged him by leaking news of Fortescue’s talks with its lenders. Panic sent the stock price into a tailspin. Once again, Australia’s greatest entrepreneur had gone to the brink. He was locked in negotiations last weekend with his banks in New York.
But instead of being stitched up with penalty rates and onerous fees and covenants, Forrest somehow emerged with an extra $4 billion – and a nice new discount on his interest rates.
Surely, there was extra security for new loans? No, nothing to speak of. How about asset sales? Maybe, but no hurry, he says.
There must be some quid pro quo. Banks are wont to take their pound of flesh. And if the price of iron ore slips towards $US80 a tonne, then Fortescue – with its hulking debt – becomes a marginal proposition again. But this was one hell of a deal.
One can sense the quiet hand of the Chinese lurking in the background. It suits them to have the ”third force” in iron ore, a rival to BHP and Rio. Besides that, they like the man.
THOSE poor little local councils, churches and charities didn’t stand a chance when the slick merchant bankers came knocking. Lehman Brothers was touting a sure-fire, high-yield, low-risk product. A CDO, it was called. Look: it’s triple-A rated by Standard & Poor’s!
Five years later, as council rates rise and the legal recriminations meander through the courts, the lawyers and liquidators feed on the Lehman carcass.
The victims are yet to see one red cent. Yet according to a creditors’ report last week, the lawyers – Clayton Utz and Ashurst mostly – have charged the estate around $28 million since Lehman collapsed in 2008.
Then there’s PPB Advisory, the ”new black” in the world of insolvency. The liquidation has racked up roughly $55 million in charges as the councils dragged Lehman all the way to the High Court to push their creditors’ claims for a return.
Despite PPB telling them there was no merit in their claims, PPB itself was pursuing a claim in the US for just that.
On the one hand, the liquidator spent a cool $10 million-plus fending off a claim that it said had no merit. On the other hand, it was chasing Lehman’s insurer in the US for a claim. And it got some back, $45 million worth.
AT LAST somebody has said we will have to cope with a lower standard of living.
Economist Ross Garnaut told a conference this week that Australians would have trouble adjusting to lower living standards as the mining boom ended.
We could have sworn the politicians kept on saying during the boom how Australian working families had never had it so tough.
The difference is leverage. After the last boom in the late 1980s, household gearing was roughly 50 per cent. It has been falling since the financial crisis four years ago, as households saved more. But the ratio of household debt to income still stands at 140 per cent, or thereabouts. There is a lot more leverage about these days, and the last recession was 20 years ago.
So these ”adjustments” are likely to be quite annoying.
THE Australian Prudential Regulation Authority oversees insurance companies.
We asked APRA if it was aware if any major insurance company had been ”pledging” its assets as security for transactions overseas
The authorities ought to know, surely. What if an insurer suddenly needed to rely on the assets it had in its accounts only to find that these assets were controlled by another party? Heaven forbid.
If one were to pledge all of one’s assets, one might not have any left if one were to be hit with a rash of claims, for instance.
One’s shareholders, one’s policyholders – and let’s not forget one’s regulators – should be aware of one’s pledging, no?
Anyway, an APRA spokesman declined to be drawn on this highly hypothetical subject.
”Thanks for your inquiry. There is no comment from APRA on the questions you ask.”