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High-flying Aussie firms learning cruel economic lessons

Some high-flying Australian firms have found themselves vulnerable in the global credit crunch as they have never weathered a crisis during the country's uninterrupted 16-year growth spurt, analysts say.

ABC Learning, the world's largest listed child care provider, became the latest casualty last week when its share price plunged 43 percent as investors baulked at its high debt levels after a disappointing earnings announcement.

ABC founder Eddie Groves, a one-time darling of the stock market, effectively lost control of the company as loans he took to buy shares were called in.

The company ended the week in a trading halt as potential buyers eyed a fire sale of ABC's assets and the market regulator investigated whether investors had been kept fully informed as the crisis unfolded.

Shopping center owner Centro, which like ABC borrowed heavily to expand in the US, is another firm facing stock market woes, as is fund manager and transport company Allco, which last year was part of an audacious takeover bid for Qantas.

Analysts said Australia's 16 years of continuous growth meant there was a generation of executives who had only known an expanding market and were poorly equipped to deal with financial shocks such as the credit crunch.

A study by business advisory firm 333 Performance Management found that up to 20 percent of Australian companies were in poor corporate health, with a further 11 percent in declining health.

Managing Director Martyn Strickland said 333's study found that "old guard" firms that had been in the benchmark S&P/ASX 200 a decade or more were enduring the market crisis best.

He said younger firms that had aggressively leveraged themselves to chase growth were struggling as they had no corporate memory of how to handle a downturn.

"You got to the head office of all the private equity companies and there's only a handful in there who were around for the last downturn," he said. "The rest are young jocks who've never been through a downturn and they've been running really bullish on the upswing of a market, they're the guys holding the troubled companies."

Commsec equities analyst Savanth Sebastian said firms that had over-extended themselves in the pursuit of "excitable growth levels" were hurting the worst.

"What you'll see is companies that have staged their growth process and really followed a long-term plan and have solid fundamentals will come out of this pretty much unscathed," he said.
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