Interesting article in SMH.The collapse of the business empire...

Interesting article in SMH.

The collapse of the business empire of the former Cairns plumber Tom Hedley would present a $1 billion headache for its various bankers, including NAB, ANZ and Suncorp. And as this financial calamity unravels, it would catch retail giant Coles in its net.

At this stage large parts of Hedley's privately owned property development group have been placed in receivership by ANZ. The North Queensland business has been hit by a decimated tourism market and the credit crunch. Suncorp also appointed a receiver yesterday.

A string of half-finished developments and finished but unsold assets are dotted along the Queensland coast. The receivers will have to finish them and sell into a flagging market.

But the broader effects will be felt if Hedley's pub empire is also under threat. The pub assets are held by the listed Hedley Leisure and Gaming Property Fund which has about $800 million in debt and experts contend no real equity value - although it has a market capitalisation of $39 million.

HLG owns about 100 pubs but, after two years of binge buying, the company has been financially weakened and, at the same time, hit by smoking bans.

The interwoven structure of the pubs business has also left it susceptible to cascading disaster if any of the individual companies fall into trouble.

HLG, in which Hedley has an interest of about 60 per cent, leases most of these pubs to another listed group, National Leisure and Gaming. Tom Hedley has a 19 per cent stake and, until recently, was a subordinated lender. This company is also heavily geared.

HLG's other major lease holder is Coles which will be desperate to retain the lease on these pubs, the development of which is a major plank in its business strategy.

National Leisure and Gaming is probably in a more parlous position than HLG. It has a loan from NAB for $180 million and lease payments to make to HLG. Experts contend that it would be struggling to pay both these expenses from operating earnings.

However, NAB cannot afford it defaulting on its lease payments because the licence to operate the pubs would revert to HLG and the bank would be left with a loan over a company with no assets.

Even if administrators were voluntarily appointed, NAB would probably move to ensure lease payments were paid in order to avoid this outcome.

In the short term this is unlikely to happen. But this house of cards is probably not sustainable in the medium to long term. It will need to be sorted out.

Where Woolworths chose Bruce Mathieson to partner it in the pub game, Coles took second prize and leased and bought pubs from Hedley.

Coles may have to take a more active role to ensure it retains these leases. It could wait to see if HLG goes under and buy the pubs, but that course has its share of risks. It could be proactive and attempt to recapitalise HLG.

Whichever way Coles moves, it will want to ensure that it does not lose the pubs, which operate at a margin twice that of its dry grocery and fresh food business.

The history of Hedley's financial demise is remarkable. He sold his initial pub portfolio to Coles for $306 million about five years back when the big supermarket retailers were pushing heavily into the market.

He then doubled up. He went on a pub buying spree and marketed his new portfolio to potential buyers. He could not transact a trade sale so he took the company to the market at the height of the equities boom. It worked.

HLG took advantage of ready credit and Hedley took margin loans against his stake. He was hit by the pincer movement when credit got expensive and the sharemarket crashed.

It's an ignominious end to the career of a Queensland identity who has gone from rags to riches, and now possibly back to rags.