Breaking down Bathla

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Bathla Group has collapsed, owing billions with hundreds of projects caught up in the fallout. And when a company that big gets into this much trouble, the obvious question is what went wrong? Was this mainly a Bathla specific story, a developer that grew too fast, basically took on too much debt and then got over its skis? Or does it also tell us something about the wider economy, where interest rates are higher, construction costs have also jumped, and private credit has become a much bigger source of finance for the building industry? Welcome to ABC Business Daily.

ABC Business Daily I'm ABC Business reporter Lin Lin, in the chair for Carrington Clarke.

Shane Oliver (1:19)

And I'm Shane Oliver, Chief Economist and Head of Investment Strategy at AMP.

Lin Lin (1:24)

Shane, so great to have you on board today. Thank you.

Shane Oliver (1:27)

My pleasure. Great to be here.

Lin Lin (1:28)

We're here on ABC Business Daily and the wider ABC Business team as well. We've been watching really closely the Bathla meltdown, and there's already been so many twists and turns. It's keeping all of us very busy and out of trouble. But today, I wanted to move away from the daily developments for a moment and use Bathla as a bit of a jumping off point.

To ask what it can and perhaps can't tell us about what we're seeing in property development, private credit, as well as the wider Australian economy. Shane, first up though, when you heard the news about Bathla Group going into voluntary administration, were you surprised?

Shane Oliver (2:11)

Not particularly.

The last few years, we have seen quite a few property developers run into administration or get into trouble. Most of that was earlier on, around the period where we exited the pandemic, around 22, 23, 24, when interest rates had gone up, property building costs had gone up and that caused problems for developers, particularly when combined with delays in completions. There was a bit of a pause, but there were some noises that Bathla was running into trouble. Some media reports that contractors were getting difficulty in seeing their payments.

Of course, we're also in an environment where these sorts of things happen. We don't want them to happen, but they often do in an environment when interest rates are rising and the costs for the industry involved are going up. So it's the sort of thing you'd expect to see. That said, it's not good news. It's the last thing you want to see happen at this point in the cycle, and given the wider issues around housing. We need to build more homes. We're not building enough homes, and this just is a further setback along that path, which has been going on for years now, to be honest with you. It just makes it harder and harder to meet those housing accord targets. I read that Bathla had something like 2,000 homes under construction, 13,000 homes in the pipeline. Yeah, we need to be building 240,000 homes a year to meet the government's targets. And I don't mean federal government, I mean states and federal government's housing accord targets to build 1.2 million homes over 5 years or 240,000 homes a year. So it's another setback on that front and that's not good news. It's also not good for the wider economy because people's livelihoods are involved when this happens and lots of contractors will be affected along with lots of people who'd put their deposits down and waiting for homes.

Lin Lin (4:03)

Yeah, as you say, Shane, so many projects now in limbo as, of course, we wait to see what happens with the business. But for anyone who missed this rapidly changing news, we first spoke on this podcast about the company when it broke more than two weeks ago. Since then, the story has really been one about a race against the clock, if you like, because we've seen that there were multiple deadlines imposed by the administrators to NAO to find fresh funding needed basically to pay workers and keep sites open. There was a request to the New South Wales government for assistance. That wasn't forthcoming. There have been multiple attempts to broker basically a deal, a group-wide deal. But that has been extremely difficult. And from Monday, we found out that only a very small group of lenders, keep in mind, so Bathla Group had more than 40 lenders. This short-term funding deal only involved five lenders. And it was only an agreement to put in three to five million dollars to keep the business running for another two weeks.