More than $5b in Melbourne construction projects to sit empty as Probuild folds

More than $5 billion worth of major building projects in Victoria will stall for weeks if not months after construction giant Probuild announced it had gone into administration on Thursday, triggering a search for new investment.

An uncertain future awaits Probuild’s construction sites across Melbourne, including a 79-storey tower that will be the city’s largest residential project, as administrators Deloitte assess how to minimise the impact of the builder’s South African parent company withdrawing its funding.

Workers gathered equipment at the UNO Melbourne site in Melbourne CBD on Thursday morning before leaving. Credit: Wayne Taylor

Clients awaiting completion of their projects by Probuild could also seek compensation for any delays, compounding the financial pain.

Wilson Bayly Holmes-Ovcon Limited, the South African engineering company whose Australian arm includes Probuild, pointed the finger at this country’s hard-line approach to managing COVID-19.

“The impact of lockdown restrictions ... have created high levels of business uncertainty in Australia and have significantly reduced demand and delayed the award of new projects,” a statement said.

While the pandemic has put pressure on supply chains, construction sites in Victoria were allowed to operate throughout almost the entire pandemic.

There were hints of Probuild’s precarious financial situation last January, when the company was left disappointed by the federal government’s decision to torpedo a near $300 million takeover bid by one of China’s largest construction firms.

For the second successive day, tradies and other subcontractors visited Probuild sites across Melbourne to remove their equipment as uncertainty raged over when projects might resume.

They include the future headquarters of biotech giant CSL in North Melbourne, which will lease nine floors of research labs and seven floors of offices as part of a $1 billion education and research precinct.

The company was optimistic on Thursday, saying it intended to work with Deloitte, Probuild and other stakeholders to mitigate any disruption to the “well advanced” project.

Workers at Probuild’s Ribbon Project site at Sydney’s Darling Harbour on Thursday. Credit: Brook Mitchell

“CSL remains focused on completing the building to take occupancy of this landmark facility for the Melbourne biomedical precinct in early 2023,” a CSL spokesman said.

The four-tower, $2.6 billion-valued West Side Place development near Southern Cross Station will host nearly 3000 apartments and a luxury Ritz Carlton hotel when completed. Its owners, Far East Consortium, were unable to be contacted on Thursday.

Other ongoing projects include Caulfield Village, which is made up of eight residential towers and 437 apartments. The $1 billion project will be particularly difficult to unravel, according to two sources familiar with it, because Probuild entered it as a joint venture.

A spokesman for Beck Property Group, the other party in the joint venture, said it hoped Probuild could trade its way out of its difficulties and was bullish about finishing the development.

The site of the future headquarters of biotech giant CSL in North Melbourne is scheduled to open next year.Credit: Wayne Taylor

“This news does not reflect on the very strong financial position of Beck Property Group or its ability to complete the Caulfield Village project,” he said.

Interstate, problems at a development in Brisbane for Cbus property are believed to be a key factor in the firm’s financial strife, while work is also ongoing at Greenland Centre – Sydney’s tallest residential building – and a 450-room luxury hotel in the revamped Darling Harbour precinct.

Melbourne-based lawyer Hubert Wajszel, who specialises in construction law with firm Barry Nilsson, said Probuild’s ongoing worksites would inevitably sit empty for several weeks, which could extend into months.

“There will be some urgency here because of the fact you’ve got live, incomplete projects,” he said. “I imagine they will try and sell the business as a whole, whether it’s to an investment fund or otherwise, and if that’s unsuccessful they may cut it into smaller pieces to sell it that way.”

Mr Wajszel said compensation for delays would almost certainly have been written into Probuild’s contracts with clients, who could seek damages immediately.

“This would only add to the likely level of debt in the business and in turn make it more difficult to find a new backer or owner,” he said.

The lawyer also predicted Probuild would not be the last large building contractor to face insolvency issues, a view reiterated by the Master Builders Association of Victoria, which said the proportion of insolvencies had risen close to their highest ever level since data recording started in 2013.

“With building contract prices locked in, the large and unanticipated surge in the prices of many building items such as timber and steel-based products means that many of our members are finding that the cost of completing work is more costly than expected,” acting chief executive Michaela Lihou said.

A Probuild spokeswoman said the local arm of the business was “abruptly informed by parent company WBHO South Africa that all cash and securitisation support would cease”.

“We are caught up in a set of circumstances not of our making,” she said.

“The Probuild brand is strong, and we intend to keep it that way. We have several options for raising the necessary capital to continue as a premium Australian building company. These will all be pursued.”

Premier Daniel Andrews said his government was open to discussing support for Probuild.

“All of us should want that business to succeed. So, if there’s anything we can do as part of that process – noting that it’s a for-profit, private company – we are always happy to try and provide support. And that can take many different forms,” Mr Andrews said.

State Opposition Leader Matthew Guy said it was important to offer certainty to avoid repeats of Probuild’s problems.

“No new taxes, no more lockdowns. They need that certainty. The statement from the parent company of Probuild says that very clearly,” he said.

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