Metricon strikes rescue deal with Commonwealth Bank

The builder confirmed it had doubled its working capital facility and said its investors would inject an additional $30m to demonstrate their ongoing confidence in the business.

The Reserve Bank expects pressure on builder profits to continue. Picture: David Caird

The country’s largest home builder, Metricon, has struck a rescue deal with its lender, the Commonwealth Bank, amid spiralling construction costs and concerns it was on the brink of collapse.

The company confirmed, late on Friday, that it had reached a deal with CBA to double its existing working capital facility. The agreement was first reported by The Australian, and followed extensive negotiations including the refusal of initial terms proposed by the embattled building firm.

Metricon’s acting chief executive, Peter Langfelder, said the company’s owners would also inject $30m into the business.

“We have previously said that our company has a proven history of success and remains profitable and viable and that we have the full support of our key stakeholders,” Mr Langfelder said

“We have also appreciated incredible support from many of our customers, suppliers and trades – but sadly, this hasn’t been enough to reinstall the complete confidence of the broader industry.

“This significant injection of capital by the owners demonstrates to our customers, employees, subcontractors and suppliers our confidence in the viability, profitability and future of the Metricon business,” he added. “We are so appreciative of the bank’s support – which demonstrates its confidence in our future.”

The Australian on Friday revealed that the NSW government had been in separate discussions with Metricon, and was considering rescue options for the building industry. The building regulator had also sought legal advice about calling in administrators.

Dominic Perrottet confirmed the discussions. “I don’t want to pre-empt that because we’re trying to at the moment attain and have a greater appreciation of the extent of the challenge that Metricon and others are facing,” the NSW Premier told reporters.

Metricon has insisted that it is solvent and told staff it was not experiencing financial problems. “In a small proportion of cases, where customers had incurred delays in taking possession of their land titles, we were renegotiating contract prices with this small group due to unprecedented price increases over recent months,” its then chief executive, Mario Biasin, said in March.

Mr Biasin’s unexpected death earlier this month prompted the re-emergence of those concerns, and Metricon held talks with the Victorian government last week – although Mr Langfelder said it was “business as usual”.

Metricon ranked as Australia’s largest builder in 2021 for the sixth year in a row. The company reported 6052 starts, a 33 per cent increase from the previous year. The company has more than 1000 sites in NSW; work has begun on some 300, sources told The Australian.

Despite the denials of financial stress, it has emerged that Metricon called in former PwC chief executive Luke Sayers earlier this month to lead discussions with the company’s investors.

Mr Sayers, now running his own consultancy, Sayers Group, was formulating a rescue plan involving convertible notes.

“There is no doubt the construction industry has been doing it incredibly tough over these last few months,” Mr Perrottet said on Friday. “We’ve been engaging very closely with the … sector.”

One option being examined is a rescue package at a cost of hundreds of millions of dollars that would shore up industry players at risk of collapse due to a confluence of factors, including the pandemic, rising material costs, recent flooding and labour shortages.

The support package may require the passage of legislation and includes discussions to distribute ex-gratia payments not only to Metricon but to other building companies, plus other measures that would alleviate the cost of levies and government charges.

On Friday, The Australian’s Margin Call column reported that the NSW Building Commissioner, David Chandler, had ordered a health check of some 20 builders in the state – which suggested some were in an equally perilous state as Metricon had found itself.

On Wednesday, Reserve Bank assistant governor Luci Ellis warned that pressures on builder profits and costs were set to continue for some time.

“Exactly when that will happen is hard to know. But when it does, we can expect some of the current rate of cost escalation and squeeze on margins to ease,” Dr Ellis said in a speech to the Urban Development Institute of Australia.

Separately, Australian Bureau of Statistics data released this week showed that residential construction costs blew out by 10 per cent over the year to March, with official figures having shown they contributed a quarter of the 5.1 per cent annual jump in consumer prices that triggered the first rate hike in over a decade in May.

James Cameron, executive director the Australian Construction Industry Forum, said the skills and materials shortages hitting the industry were “almost at crisis point”.

“Consumers require reassurance, confidence and certainty to build and invest,” Dr Cameron said.

The ACIF, a sector lobby group. it calling on the new federal government to consider the current materials and labour shortages before rolling out new infrastructure and building programs.

“The Labor government can play a key role in improving the poor culture of the construction industry,” Dr Cameron added.

“We would like to see a more collaborative rather than a confrontational environment on construction sites.”

CBA declined to comment.

The financial pressure on the industry has already claimed several large builders, including Condev, which went into liquidation in March after it failed to secure $25m from clients to keep operating.

Probuild called in administrators in February shortly after the company’s South African owners pulled the pin on providing further financial assistance.

Originally published as Metricon strikes rescue deal with Commonwealth Bank