$51m debt after Grollo bailed out Grocon
Grocon owner Daniel Grollo has to repay $51 million by late September after taking out a high-interest loan to refinance the struggling development and construction group, company documents show.
The company’s poor financial state is laid bare in an annual financial report, filed with the corporate regulator this week, that reveals it lost almost $50m last year, before tax, and includes a warning from auditors that it might not be a going concern.
Grocon’s report also reveals the company planned to sell the rights to a “substantial development project”, of at least 90,000sq m, which the company did not name.
The report’s revelations follow a horror year for the company, which has lost its builders licence in Queensland because it did not hold sufficient capital, been hit by complaints of late payments from subcontractors at the $550m Gold Coast athletes’ village for the Commonwealth Games and lost a $200m contract to build new Sydney headquarters for the Nine Network after it failed to lodge a performance bond on time.
Much now hinges on the success of the $1.8 billion Central Barangaroo project, where Grocon is part of a winning consortium that has battled over what can be built at the site with James Packer, who is keen to protect views of the harbour from a casino his Crown Resorts group is building.
The annual report, which was filed three months late, also confirms The Weekend Australian’s reporting that Mr Grollo has tipped his own money into the company.
A directors’ statement in the annual report, signed by Mr Grollo, shows that on December 19 the “sole shareholder” of Grocon Group Holdings “entered into a financing agreement with an external financier pursuant to which the proceeds of $40m, less transaction costs, were invested in the group”.
“The financing arrangement between the sole shareholder and the financier requires repayment of $51m by 22 September 2018, and is subject to certain conditions over this period.”
Company documents show Grocon Group Holdings’ sole ordinary shareholder is Grocon Investments, which in turn is wholly owned by Mr Grollo.
Preference shares in Grocon Group Holdings are owned by another company, Twenty Twenty2, which is owned by Mr Grollo and his wife, Kat.
A Grocon spokeswoman declined to comment.
The loan, which has an effective annualised interest rate of 36.5 per cent, is secured by guarantees from Grocon and its subsidiaries and security over “the rights and interests to the development fees from a major development project”.
Grocon’s annual report does not disclose the name of the len- der or say which project it has given the extra security over.
However, last month The Australian reported that an entity connected to mezzanine funding group MaxCap took security over Grocon’s assets just before Christmas.
The MaxCap Barangaroo Unit Trust was registered as a business only a fortnight earlier, on December 7, records show.
Grocon’s annual report shows the company bled cash in the 2016-17 financial year, with cash outflows totalling $105m.
The group made an operating loss of $37.8m, which when finance costs were added resulted in a loss before tax of $48.9m.
However, the reported aftertax loss was narrowed significantly by a tax benefit of $21.4m.
In his report Grocon’s auditor, PwC partner Andrew Cronin, drew attention to the company’s $27.5m after-tax loss, its mammoth cash outflow and a deficiency of current assets of $14.4m.
The company was also “highly dependent on successfully achieving its initiatives to sell the development right to a development project as well as achieving sufficient future cash flows on existing and pipeline projects in line with the group’s forecast to continue its operations”, he said.
He said “a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern”.
Grocon’s cashflow statement paints a picture of a company feeling the pressure.
Cash receipts from customers fell from more than $450m to about $399m, while over the same period payments to suppliers and employees jumped from $347m to $505m.