Inflation Surge Raises Odds of August Interest Rate Hike
As of 27 June 2024, investors are eyeing a potential interest rate rise in August, with odds now at one-in-three. This comes after inflation hit a six-month high, sparking concerns among economists about persistent price pressures.
Key Points:
- Annual inflation jumped to 4% in May from 3.6% in April
- ASX 200 closed 0.7% lower at 7783 points
- Fruit and vegetable costs saw the biggest annual rise in a year
The inflation spike has led to calls for the Treasurer and state counterparts to rein in spending, which some fear is fuelling inflation. Innes Willox, Australian Industry Group chief executive, warned of possible multiple rate rises, emphasising the need for government restraint.
"Recent budgets featuring unrestrained spending, which have driven up debt and deficits, particularly at the state level, have been especially unhelpful in the inflation fight," Willox stated.
Economists now predict the Reserve Bank of Australia (RBA) may raise the cash rate to 4.6% at its next meeting. The June quarter Consumer Price Index figures, due on 31 July, will be crucial in determining the RBA's next move.
Housing Costs and Services Inflation
The housing market remains a significant contributor to inflationary pressures. Rent inflation, while slightly lower at 7.4%, is near its fastest rate since 2009. Services inflation also remains strong, with vet costs up 7.1%, haircuts up 5.5%, and restaurant meals 4.2% more expensive over the past year.
While upcoming electricity rebates may temporarily lower headline inflation, underlying inflation is expected to remain above the RBA's 2-3% target band, making near-term rate cuts unlikely.
Qatar Airways Eyes 20% Stake in Virgin Australia
In a move that could reshape Australia's aviation landscape, Qatar Airways is in talks to acquire up to 20% of Virgin Australia. This potential deal comes as Bain Capital, Virgin's current owner, postpones plans for an ASX listing.
Strategic Partnership and Regulatory Hurdles
Qatar Airways, owned by the Qatari government, already partners with Virgin to compete against market leader Qantas. However, the proposed stake acquisition faces scrutiny from the Foreign Investment Review Board and could potentially be blocked by the Australian government.
"Virgin having solid backing would be clearly helpful for the domestic industry," said Stephen Pearse, executive director of the Board of Airline Representatives Australia.
Implications for Australian Aviation
The deal could significantly boost Virgin's position in the market. Qatar's interest comes after the Albanese government rejected the airline's bid to increase flights to major Australian cities last year, citing protection of local aviation jobs and Qantas' interests.
Despite this setback, Qatar CEO Badr Mohammed Al Meer recently hinted at ongoing discussions for additional flights, expressing optimism for a positive resolution within months.
Virgin's Future and Market Position
Bain Capital acquired Virgin in 2020 during the COVID-19 pandemic. The company reported $2.8 billion in revenue for the six months to December 31, up from $2.5 billion the previous year. However, recent analysis suggests Qantas and Jetstar have been gaining market share in 2024.
As Virgin searches for a new CEO to replace Jayne Hrdlicka, the potential Qatar Airways investment could provide the stability and backing needed to strengthen its position in the competitive Australian aviation market.
Business Council Calls for Guardrails on Future Made in Australia Policy
As the Albanese government prepares to introduce its Future Made in Australia legislation, the Business Council of Australia (BCA) is advocating for stronger safeguards. BCA chief executive Bran Black will outline these recommendations in a speech on Thursday in the Hunter Valley.
Key Proposals:
- Taxpayer clawbacks for projects failing to meet milestones
- Funding only for projects where Australia has a comparative advantage
- Expert-led, transparent, and independent investment decisions
- No support for commercially viable projects or those requiring permanent subsidies
Meanwhile, Prime Minister Albanese will address an economic forum in Canberra, criticising the opposition's nuclear power plans as a threat to clean energy investment and climate action.
"Australia has every resource imaginable to succeed in this decisive decade... The only thing our nation does not have is time to waste," Albanese will say.
The BCA supports Labor's response to global industry policies, including the US Inflation Reduction Act. However, Black emphasises the need for careful investment:
"These are high bars. And so they should be, with taxpayer dollars at stake. That said, we need a Future Made in Australia to work, and to work well. We cannot sit still while other nations are acting."
The Future Made in Australia Act aims to boost investment in clean energy, critical minerals processing, and emerging technologies like green hydrogen. As global competition intensifies, the BCA stresses the urgency of making Australia a more competitive business environment.
Melbourne Man to Face Trial for Alleged Insider Trading
Duncan Stewart, a Melbourne resident, has been committed to stand trial on charges of insider trading brought by the Australian Securities and Investments Commission (ASIC). The case revolves around share trades in lithium miner Kidman Resources.
Key Details of the Case
ASIC alleges that Stewart used confidential information, likely obtained from his brother-in-law and Kidman Resources CEO Martin Donohue, to profit from takeover interest by Chilean miner SQM and Wesfarmers in 2019. The regulator claims Stewart made over $68,000 in profits when Kidman's share price surged following the announcement of Wesfarmers' proposal.
"ASIC described the communication as 'frequent' and 'intense'."
Evidence presented includes text messages and phone calls between Stewart and his brother, as well as multiple calls with Donohue during the Wesfarmers deal. Stewart is also accused of encouraging his brother, Ashley, to purchase shares.
Legal Proceedings
Magistrate Rohan Lawrence ordered Stewart to appear at the Melbourne County Court on 24 July for the start of the criminal trial. Stewart has pleaded not guilty to the charges.
While Donohue was investigated, he has not been charged. Stewart's defence lawyer, Ruth Shann SC, has denied that Donohue was the source of any inside information and argued that their contact is irrelevant to the case.
Cettire CFO Faces $4.2M Tax Bill as Share Price Plummets
In a shocking turn of events for luxury retail platform Cettire, Chief Financial Officer Tim Hume is grappling with a hefty $4.2 million tax bill while his stock options have become virtually worthless. This comes as the company's share price nosedived following a profit downgrade on 24 June 2024.
Stock Options Dilemma
Hume received 2.5 million options in August 2023 with an exercise price of $1.21. These options, once worth about $12 million, are now underwater after Cettire's shares plummeted 50% to $1.13 on Monday, closing at $1.06 on Wednesday.
"Under Australian Taxation Office rules, a tax liability is crystallised at the date of vesting, assessed on the difference between the share price and the strike price. This is the case even if the options remain unexercised."
Luxury Market Softens
Cettire, known for offering discounted luxury brands like Gucci and Chloe, has adjusted its earnings forecast downward. The company now expects adjusted EBITDA for this year to be between $32 million and $35 million, over 20% below market expectations.
Founder and Investors Impacted
CEO and founder Dean Mintz, despite previously netting $330 million from share sales, has seen his wealth significantly impacted. The company's market capitalisation dropped by $450 million this week. Major shareholders, including hedge funds Regal and Cat Rock, have also suffered substantial losses.
As Cettire grapples with these challenges, the luxury retail sector watches closely to see how the company will navigate this turbulent period.
Sydney's City Tattersalls Club to Sell Historic Clubhouse Amid Financial Struggles
In a surprising turn of events, the 129-year-old City Tattersalls Club in Sydney is set to sell its heritage-listed Pitt Street clubhouse to its own developers. This move comes as the club grapples with financial difficulties during the site's redevelopment into a luxurious 50-storey tower.
Financial Woes and Failed Rescue Attempts
Throughout 2024, City Tatts has desperately sought external capital to cover operating costs as revenue plummets and expenses soar. The club has reportedly fallen behind on payments to some vendors while shelling out over $1 million annually in rent for its temporary venue, The Castlereagh.
Despite exploring various options, including a $15 million emergency debt injection and attempts to sell the clubhouse, the club has struggled to secure a deal. Even global investment giant BlackRock reportedly considered the club's capital needs but ultimately walked away.
The Last Resort: Selling to Developers
With no lenders or buyers in sight, City Tatts is now finalising a sale of its Pitt Street property to a consortium including Melbourne's ICD Property and Singapore-listed First Sponsor. The deal is expected to be completed by 30 June 2024, marking the end of the club's century-long ownership of the property.
"Our club has been making serious losses month on month and debt has built up to an alarming level," said Patrick Campion, City Tatts' chairman, in his recent address.
The redeveloped site, slated to open in the 2027 financial year, will feature 241 apartments, a 110-room hotel, and stunning views of Hyde Park and Darling Harbour. However, this transformation comes at a hefty cost for the historic club, both financially and sentimentally.
As City Tattersalls Club faces this crucial turning point, the future of this Sydney institution hangs in the balance, highlighting the challenges faced by traditional clubs in a rapidly changing urban landscape.
HMC Capital's Bold Move into Private Credit Market
HMC Capital is set to make waves in Australia's burgeoning private credit market, with ambitious plans to grow its newly acquired Payton Capital into a $5 billion-plus business. This strategic move aligns with the broader trend of investment firms capitalising on the growth of private credit in Australia.
Acquisition and Growth Plans
Next week, HMC will finalise its $127.5 million acquisition of Melbourne-based Payton Capital, funded by a recent $100 million capital raise. The deal brings on board 70 staff across Melbourne, Sydney, and Brisbane, with Payton's current $1.7 billion in assets expected to reach $2.5 billion by June 2025.
"It is starkly apparent to me that we are still in a very nascent stage of the development of the private credit markets [in Australia]," said HMC chairman Matt Lancaster.
Market Potential and Investment Strategy
HMC-backed Payton is targeting returns of 10-12% for development financings, with plans to expand into asset-based finance offering 9-15% returns. The firm aims to tap into institutional funding sources, moving beyond its current reliance on family offices and wealthy individuals.
Risk Management and Transparency
Addressing concerns about the opacity of private credit, Lancaster emphasised the firm's commitment to providing monthly performance updates. He also highlighted the wealth of evidence available in commercial real estate to help de-risk investments.
With $500 million in credit already secured from two investment banks, HMC Capital is poised to make a significant impact in Australia's private credit landscape, joining the ranks of established players like Tanarra Capital and Regal Funds.
Melbourne Commercial Property Auction: A Tale of Two Markets
In a recent commercial property auction in Melbourne, smaller retail spaces attracted fierce competition, while a large car dealership struggled to find a buyer. The auction, held at Crown Casino on 27 June 2024, highlighted the current state of the Australian commercial property market.
Small Retail Spaces Spark Bidding Wars
A Bakers Delight shop in Rosanna and a veterinary clinic in Pascoe Vale generated over 90 bids combined. The bakery, a 154-square-metre space, sold for $943,000 on a 3.9% yield after 42 bids. The vet clinic, leased to VetPartners, fetched $1.705 million on a 4.5% yield after 52 bids.
"For these assets, yields are still holding at under 5 per cent," said Ingrid Filmer, managing director of Burgess Rawson.
Large Dealership Fails to Sell
In contrast, a Ford dealership in Sunbury, valued at over $10 million, didn't receive a single bid. The vendor's refusal to lower the reserve price below $10.2 million led to the property being passed in.
Market Insights
The auction results reveal a strong appetite for sub-$2 million properties with reliable tenants. Many buyers in this bracket are cash investors seeking secure income streams, less concerned about interest rates.
Overall, the Melbourne auction achieved sales of nearly $25 million with a 60% clearance rate. Other notable sales included a Grill'd restaurant in Perth and a Victorian MP's electoral office.
Sydney Auction Success
A separate auction in Sydney saw all properties sold, totalling $27.41 million. The highlight was an Affinity Education childcare centre in Killara, which sold for $7.78 million on a 4.1% yield.
These results underscore the ongoing demand for quality commercial properties in prime locations across Australia, particularly in the sub-$2 million range.
Power Workers' Strike Delays Major Sydney Airport Project
Industrial action by the Electrical Trade Union (ETU) at Endeavour Energy is causing significant delays to critical infrastructure projects in western Sydney, including the $1.7 billion interchange linking the M7 to the new M12 motorway. This vital connection is crucial for the Western Sydney Airport, set to open in 2026.
Project Impacts and Broader Consequences
The union bans, which began on 1 February 2024, have pushed back the interchange project by up to four months. The industrial action is part of the ETU's campaign for a 24% pay rise over three years. The disruption has also affected housing developments and $1.2 billion worth of industrial projects across New South Wales.
"The ongoing industrial dispute is having substantial financial and timeline impacts on several road projects, including the M7-M12 integration," a Transport for NSW spokesperson confirmed.
Subcontractors Feel the Pinch
Small businesses are bearing the brunt of the industrial action. Tony de Vos, an electrical infrastructure subcontractor, reports that his business has been "driven to its knees" due to the standoff. He has been unable to progress nearly $1 million worth of contracted work for the M7-M12 integration.
Government Response and Union Stance
The NSW government, which owns 49.6% of Endeavour Energy, has encouraged both parties to resolve the dispute privately. Meanwhile, the ETU argues that Endeavour Energy has increased management pay significantly while offering workers less.
As the dispute continues, there are growing concerns about potential impacts on electricity prices and the broader economy. With no immediate resolution in sight, the standoff threatens to further delay critical infrastructure projects in western Sydney.
Advent International Expands Down Under with Key Hire
27 June 2024 - US private equity giant Advent International is set to make waves in the Australian and New Zealand markets with a strategic expansion. The move comes as the firm taps Beau Dixon, a seasoned dealmaker from Anchorage Capital Partners, to lead its new Sydney office.
A New Player in the Aussie Deal Scene
Advent's decision to establish a local presence signals its commitment to the region's burgeoning private equity landscape. With a massive war chest of $141 billion, the Boston-based firm is poised to become a formidable competitor in major auctions.
"It's not every day that a deep-pocketed financial sponsor decides to drop a pin on Australia," said a market insider. "This is an exciting development for the local M&A scene."
Proven Track Record
Dixon brings a wealth of experience to his new role, having orchestrated several high-profile deals at Anchorage. His portfolio includes the acquisition of retail icon David Jones and a joint bid for Southern Cross Media. Joining Dixon in the Sydney office will be Hayden Neeland, another Anchorage director.
Global Powerhouse, Local Focus
Advent International, founded in 1984, has built a formidable global presence with approximately $138 billion in assets across 42 countries. The firm already has a history of Australian investments, including stakes in payments software business Xplor and water treatment company Culligan.
As Advent sets up shop in Sydney, the Australian private equity landscape is bracing for increased competition and potentially larger deal flows. With Dixon at the helm and Advent's substantial resources, the firm is well-positioned to make a significant impact on the local market.
