the end

Fears grow that ABC may be on verge of collapse



Anthony Marx
August 29, 2008 12:00am

SPECULATION continues to grow that Australia's largest childcare provider is poised to collapse, but parents have been urged not to panic.


But parents of children attending debt-laden ABC Learning Centres have been urged not to panic. There is very little chance that nearly 1200 centres will close even if creditors seize control of the embattled group.

Brisbane-based ABC is expected to emerge from a four-day share trading suspension today and reveal that full-year losses are worse than the $437 million of pre-tax red ink already acknowledged.

There are fears that up to $200 million in writedowns could be unveiled following the company's ill-fated expansion into the US and the part sale of those assets. The company today could also seek to extend its trading halt as auditor Ernst & Young reviews prior year accounts, which could result in adjustments contravening banking covenants.

Barrie Elvish, chief executive of the non-profit Creche and Kindergarten Association of Queensland, believes that there is a "very strong possibility" that ABC will fall over.

Mr Elvish predicted ABC financiers could appoint receivers or administrators who would then bring in temporary operators to restore some credibility to the group. He thinks the centres will later be sold off in small groups to private investors rather than unloaded as a single entity.

"It's very much a tainted product now," Mr Elvish said yesterday. "I think it would be very unlikely that someone, unless they were prepared to get it at a bargain price and then spend a lot of money on rebadging and remarketing and all the rest of it, will get it back to credibility. I can't imagine it staying as one group."

Calls for ABC founder Eddy Groves and his wife, Le Neve, to resign from an already-shaken-up board are likely to grow louder if the financial results are worse than expected.

Analysts say they should follow the lead of other companies, such as Allco and Babcock & Brown, where founders exited after disastrous results brought on by the credit crisis.

ABC borrowed almost $3.5 billion over the past four years to expand globally but has been caught out by the credit crunch. Nearly $1.5 billion in debt must be repaid in two years.

Litigation funder IMF Australia has been retained by ABC shareholders to file suit over alleged breaches of the Corporations Act. The company's share price remains frozen at 54c, far off its $8.80 peak in late 2006.

Mr Groves did not return calls and a company spokesman declined to comment.


http://www.news.com.au/couriermail/story/0,23739,24256460-3122,00.html

I guess the directors, auditors and insurers are preparing themselves for a long and lengthy battle. The Federal Court approved yesterday the IMF initiated shareholders' class action against Aristocrat. I am sure that IMF will be writing to shareholders shortly to ask them to join in the class action.

Do not be surprised if Eddie announces his departure from ABS today.