Agribusiness defaults sprout in wake of downturn

The number of people defaulting on agribusiness managed investment scheme loans is on the rise.

Timbercorp has announced it has almost doubled the provision for bad debts due to the economic downturn, with the agribusiness manager’s doubtful debt provisions now standing at $42 million.

Great Southern, which has provided finance to a considerable number of the projects it has sold, declined to comment on debt provisions.

But in the company’s financial results for the year ending September last year, the fund manager announced it had increased doubtful debt provisions to $56.9 million compared to $5.6 million in its 2007 financial results.

According to Australian Agribusiness Group, the managed investment scheme sector raised $5.7 billion between 2002 and last financial year.

The researcher found that in 2008, 73 per cent of project sales were geared, and it believes similar figures apply to sales in the past six years.

A Timbercorp spokesperson said people were defaulting on all areas of payments to the manager.

He said there were defaults in project invoices, where the annual payment was spread over 12 months, loans on investments in schemes and project management fees.

“If people are feeling stretched [in their finances], they’re defaulting, but the numbers have flattened out,” he said.

Timbercorp has not resorted to legal action yet to recover outstanding loans as it plans to use the revenues that would have gone to the investor to wipe out debts.

Lonsec head of agribusiness Jim Blackburn said he had noticed a number of agribusiness managers increasing doubtful debt provisions.

He attributed some of these provisions to investors refusing to pay management fees due to the poor performance of some agribusiness schemes.

“When they see investments performing poorly, they feel no obligation to pay management fees and they fall into arrears,” he said.

However, not all large managers are reporting problems with defaulting investors.

Forest Enterprises Australia chief executive officer Andrew White said while the manager had some defaulting loans, the numbers were small — below 1 per cent.

“We always maintained a rigorous assessment process on loans, even low-doc loans,” he said.

“As a result, we have applied a rigorous approach to our loan book management, which enabled us to securitise the loan book at 100 cents in the dollar.”

White said the manager had been very diligent with loans and that this was paying dividends in these difficult times.

While the larger managers were courted by the finance arms of Allco (through Momentum Finance) and Adelaide Bank to offer finance, smaller agribusiness managers often struggled to provide this service.

But it has resulted in cleaner loan books for these managers, with hardly any defaulting investors.

Tropical Forestry Services sales manager Neville Pollard said only 35 per cent of the manager’s sales were financed.

“The number of defaulting investors is not of concern,” he said.

“We were very conservative with our lending and had a thorough disclosure process.”

Australian Bight Abalone chief executive Andrew Ferguson said the manager had experienced 3 per cent defaults in terms of payments spread over a year. The manager has about 25 per cent of sales financed.

“We are very conservative when it comes to loans, as we are not in the business of money lending,” he said.