Home builder-developer icon AV Jennings could go private

Iconic Australian residential home builder and developer AV Jennings has gone from bad to worse recently with a $10 million first-half loss that could hasten the privatisation of the property giant.

The loss, announced yesterday, is certain to fuel speculation that AVJ chairman Simon Cheong plans to privatise AVJ after a recent 1.1 million share purchase gave his Singapore-based SC Global Developments 50.03 per cent of the company. 

The extra shares, bought prior to Christmas, lifted SC Global’s stake from 49.63 per cent. 

One of Singapore’s richest individuals, Mr Cheong is understood to have tired of constant criticisms of AVJ’s performance by Ron Brierley’s Guinness Peat Group. 

The Singapore developer takes a long-term view of the Australian market and is reportedly willing to ride out the current downturn. 

GPG is AVJ’s second largest shareholder, controlling about 10 per cent of the company. 

GPG has been a regular critic of AVJ’s returns to shareholders and wants the company wound up. 

GPG also controls AVJ development rival the Canberra Investment Corporation. 

AVJ has been in turmoil since the start of December when managing director and chief executive officer Louis Milkovits resigned. 

During a 9 1/2-year stint, Mr Milkovits transformed AVJ from a struggling home builder to a diversified property company controlling some of Australia’s prized property assets. 

His temporary replacement, acting chief executive Peter Summers, said yesterday the $10 million after-tax loss reflected continued market pressures brought about by the global financial crisis. 

“These poor market conditions, coupled with a lack of affordability, have led to a considerable fall in consumer confidence, severely impacting on the residential property market,” Mr Summers said. The $10 million loss in the six months to December, 2008, compares to an after-tax profit on $6.1 million for the previous corresponding period. 

The loss includes $3.5 million from interest rate hedging contracts. 

Mr Summers said AVJ regularly used such contracts to limit its interest rate exposure. 

Due to recent cuts in interest rates and expected further cuts, the current market value of these contracts has decreased, resulting in the unrealised loss.

Mr Summers said despite the latest setback, and continuing uncertain economic conditions, the company’s portfolio remained well positioned to take advantage of any improvements in the market resulting from government or Reserve Bank actions. 

Nonetheless, AVJ management was in the process of examining all areas of the business to ensure their appropriateness to the present environment and to preserve capital resources. 

The assessment is likely to involve AVJ’s recent move into highrise and mid-rise apartment markets. 

Under Mr Milkovits, AVJ became an emerging player in this market, building high-end apartments in some of Sydney best North Shore suburbs. 

Although heavily exposed to Australia’s worst housing market, NSW, AVJ controls some of Sydney’s best land, and a major residential land development in Adelaide’s outer northern suburbs. 

The company has also lessened its market exposure through a series of joint ventures involving either other developers or financiers. It’s conservative approach to acquisitions was acknowledged yesterday by Mr Summers. 

He said the company expected to avoid any significant asset write-downs in the December 31 accounts, despite the market environment.