The ripple effects from the collapse of Probuild are expected to extend to insurance firms, which are likely to play a part as sub-underwriters for its bank guarantees.
Probuild is not thought to have any traditional banking facilities, but instead bank guarantees, which are common in the construction industry and taken out to enable builders to get projects finished and pay subcontractors.
CBA, NAB and ANZ have Probuild exposure.
Typically, banks get such guarantees sub-underwritten by insurance companies to limit their own risks. When engineering company RCR Tomlinson collapsed in 2018, for example, it had a bank guarantee worth $295m.
Probuild’s voluntary administrator Deloitte is sending a strong message to the market that it is focusing on a sale of the company and that it is committed to ensuring it remains afloat.
The group’s South African parent, WBHO, has tried for a number of years to sell Probuild, but finding buyers can be tricky for businesses in the construction industry.
Yet Deloitte is telling the market that Probuild is a good business and is confident a buyer can be found.
It is believed to be planning to remove troublesome projects from the sale offering.
These include the contract for the $170m redevelopment of Sydney’s MLC Centre for Dexus Property, the Cbus residential tower project at 443 Queen St in Brisbane and potentially one other project.
Dexus has a bank guarantee in place for the project, which has $12m worth of work outstanding.
Deloitte turnaround & restructuring partners Sal Algeri, Jason Tracy, Matt Donnelly and David Orr are working on the situation. The trio also assisted on the Virgin Australia collapse in 2020.
Probuild, one of Australia’s largest builders, has a turnover of more than $1.4bn and employs about 750 people.
It has work in hand of around $5bn and is thought to owe about $300m to subcontractors.
It will be interesting to see if Moelis gets involved in the situation.
When Probuild was for sale, it was handled by Investec banker Chris Stefanovski, who has since joined Moelis as a managing director.
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