BUSINESS

Sailing close to the wind

Alan Bond struggles to avert a financial collapse

MICHAEL ROSE December 4 1989
BUSINESS

Sailing close to the wind

Alan Bond struggles to avert a financial collapse

MICHAEL ROSE December 4 1989

Sailing close to the wind

Alan Bond struggles to avert a financial collapse

For Australia’s small circle of high-stakes multimillionaire entrepreneurs, it has been an autumn of brutal defeats. Last month, Robert Ansett’s Australian Budget Rent a Car Systems empire collapsed and is now in the hands of a liquidator. In October, Christopher Skase’s Qintex Australia Ltd., a media and resorts conglomerate, which unsuccessfully bid $1.1 billion for MGM-UA Communications last summer, also went into receivership. And now, in one of the most severe crises in Australian business history, Alan Bond, the flamboyant 51year-old brewing, real estate and media magnate who captured Australia’s—and the world’s— heart in 1983 by becoming the first non-American in 132 years to win the coveted America’s Cup yacht race, is struggling desperately to avoid the same fate.

Last week, the pressure on Bond intensified as the Australian Stock Exchange suspended trading in Bond Corp. Holdings Ltd. and a subsidiary after the companies failed to submit annual reports on time. Bond, who narrowly avoided bankruptcy in 1975, has survived setbacks before. But, in recent weeks, the outlook has been

particularly grim. On Nov. 14, the long-awaited annual report for Bond Corp., which includes the internationally successful Swan beer, revealed that its combined debt was an astonishing $7.5 billion for the fiscal year ending June 30, 1989. The company also reported a preliminary loss of $928.7 million, the worst in Australian corporate history. In a lengthy qualification at the end of the report, auditors from the multinational accounting firm Arthur Andersen and Co., expressed “substantial doubt” that Bond’s flagship Bond Corp. “could continue as a going concern.”

In the past, Bond’s penchant for risk-taking and large-scale borrowing has paid big rewards. The son of English immigrant parents, who arrived in Perth in 1950 when he was 12, Bond began his career by apprenticing as a sign writer when he was 17. Two years later, with the help of a bank loan, he boldy formed his own property development business, and by the time he reached 21 he was a millionaire.

He soon began investing more heavily in property, and over the next three decades he added a lucrative array of television and radio stations, brewing companies, and even more commercial real estate to his Perth-based land business, often by acquiring large amounts of debt. In 1975, however, Bond’s borrowing brought him to the brink of bankruptcy after a disastrous bid for the Robe River Mines, an ironore mining company in Western Australia. But Australia’s ANZ Bank gave him sufficient time to restructure his $73-million debt.

Now, with the prime interest rate at 17 per

cent in Australia, analysts argue that the style that brought Bond success in the early years could prove his undoing in the much larger international arena where he now plays. “He has always sailed his companies pretty close to the wind,” said Terry Walter, a professor of finance at the Graduate School of Management at the University of Sydney. “But he kept on wheeling and dealing at a time when he should have been consolidating.”

Bond’s headlong plunge into international high finance began in earnest after his spectacular America’s Cup win at Newport, R.I., in 1983. In the two years following that victory, Bond Corp.’s assets nearly doubled to approximately $810 million from $450 million. Then, in 1987, he spent more than $5 billion in mostly borrowed funds to buy Australia’s Channel Nine television network, a controlling position in Chile’s national phone company and the U.S.-based G. Heileman Brewing Co. Inc. After surviving the stockmarket crash of October, 1987, Bond stunned the art world by purchasing Vincent van Gogh’s Irisesior $72 million, the highest price ever paid for a painting. He bought the painting with the help of a $36-million loan from Sotheby’s in New York City and he still owes a portion of that loan.

By 1988, those acquisitions had already started to stretch Bond Corp.’s capacity to the limit. But Bond continued to disregard warnings of many of his managers and forged ahead with his international buying spree. Despite advice that the company was overvalued, Bond insisted on buying a 20.4-per-cent stake in the giant U.K.-based mining, services and newspaper conglomerate Lonrho PLC, for approximately $590 million. On a whim, he bought the St. Moritz Hotel in New York’s luxurious Central Park south area for $220 million.

Now, analysts say that Bond must appease his bankers in order to survive, but that task is becoming increasingly difficult as his debt problems—now requiring almost $1 billion annually in interest payments alone—continue to mount. To reduce the punishing interest charges, Bond recently outlined a complex survival plan to shrink his debt load to $2.2 billion by June, 1990. The plan calls for him to buy back $2.7 billion worth of bonds and debentures now trading in the United States and Europe, but at far less than their original value. As well, to generate enough cash to reduce the debt, he will have to sell a 50-per-cent interest in his lucrative Australian-based Swan and Castlemaine Tooheys breweries, makers of Castlemaine xxxx, as well as some of his radio stations and the St. Moritz Hotel.

Despite the daunting threats to his empire, Bond remains outwardly confident. In October, in a rare interview with the Sydney Morning Herald, Bond boasted that he has “been in business for a long, long time, and I expect to be there for at least as many years again.” But, even with his proven abilities as financial juggler, making good on that prediction will undoubtedly be Bond’s biggest challenge to date.

MICHAEL ROSE