Fkp Had Cash Crisis Long Before It Was Disclosed

Sydney Morning Herald

Monday December 29, 2008

Vanda Carson

THE Queensland developer FKP Property Group was having serious financial difficulties well before it disclosed them to the sharemarket, a Federal Court has found.

Despite the company saying it had a "sound" balance sheet at its half-year results briefing in February, the Federal Court has found FKP was having severe cash flow problems by the end of last December.

"Put simply, the undisputed evidence at trial showed that by the end of 2007 FKP was facing a time of financial hardship," Justice Michelle Gordon said in a judgment made on December 18.

"Sales of significant assets had fallen through. It needed a cash injection and it needed it fast," she said.

Details of the company's urgent need for cash were revealed after Coles supermarkets, now owned by Wesfarmers, sued it in the Federal Court for breach of contract.

Coles sued the property group after it said it was gazumpedas anchor tenant for a new $20 million shopping centre in an outer-western Melbourne suburb earmarked for rapid growth.

It was successful in claiming that FKP had breached its contract and misled it. The court is yet to decide whether Coles will be awarded damages or the lease in the centre.

The case exposed FKP's finances at the time and the details of its negotiations.

"An internal FKP deadline of an injection of $5 million by December 31, 2007 had passed without being met," Justice Gordon said.

At its half-year results two months later the FKP managing director, Peter Brown, boasted about the company's "strong balance sheet".

Shares in FKP have fallen from $6.35 to 45c since the start of this year. It was not until September 30 that FKP issued a profit downgrade and warned the property industry was facing liquidity problems.

However, FKP denied it has failed to keep its shareholders informed. "FKP has at all times complied with its continuous disclosure obligations," a company spokesman told the Herald.

The court heard that despite offering Coles the lucrative right to put a supermarket in the Tarneit shopping centre it was developing in late 2006, FKP later offered Coles's rival Woolworths the same site.

The court heard that FKP's motive for offering it to Woolworths was that Woolworths could help it by buying some of its less appealing assets.

It used the Tarneit site as an "enticement" in return for Woolworths agreeing to take two less appealing sites off its hands.

As part of the deal, Woolworths agreed to buy land at Cowes on Phillip Island and to be anchor tenant at a less appealing development in Shepparton.

The case provided an insight into the highly strained negotiations between shopping centre developers and big supermarkets.

The court was told FKP went behind Coles's back and offered the 20- to 40-year lease of the highly prized 3200 square metre supermarket at the Tarneit site to Woolworths in March this year.

"Without the knowledge of Coles, [FKP] and Woolworths signed a letter of offer of supermarket premises . . . Unsurpris- ingly, Coles is unhappy," Justice Gordon said.

FKP admitted it had revealed to Woolworths the terms of the offer Coles had agreed to, which included a rental payment of $260 a square metre or 2 per cent of gross sales over $37 million.

The case returns to court in Melbourne on January 23.

© 2008 Sydney Morning Herald

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