The Tinkler question: has Australia's youngest billionaire run out of luck?
Nathan Tinkler, the mine electrician who became a coal entrepreneur, has been stripped of his biggest asset
Paddy Manning
guardian.co.uk, Friday 28 June 2013 16.12 AEST
Is it all over for Nathan Tinkler, the former mine electrician from the Hunter Valley who became Australia’s youngest billionaire two years ago at the age of 35?
The coal entrepreneur is now free of potential insolvent trading claims and a possible freeze on his Australian assets. But he’s not out of the woods yet. From his base in Singapore, Tinkler controls a much-diminished empire and remains in debt to his main lender, hedge fund Farallon Capital, which last Wednesday stripped him of his biggest asset, a 19% stake in listed miner WhitehavenCoal.
Tinkler shot to fame after he and his partner scraped together $1m to put his foot on the unloved Middlemount coal deposit in Queensland in 2006. Borrowing the rest of the $30m purchase price, Tinkler sold Middlemount on to Macarthur Coal barely a year later, taking shares he quickly traded for a cool $442m in cash. Amazingly, Tinkler pulled off the same trick in 2009, borrowing heavily to buy the Maules Creek deposit in New South Wales from Rio Tinto for $480m and selling it on for $1.2bn in 2010.
In one of the greatest spending sprees of all time, Tinkler splurged hundreds of millions of dollars on his horse stud Patinack Farm, the Newcastle Knights rugby league team, the Newcastle Jets football team, private jets and a helicopter, a fleet of exotic supercars and lavish mansions in Newcastle, Brisbane, Coffs Harbour and Hawaii.
But Tinkler’s strategy of borrowing to buy, prove up and flip undeveloped coal projects, which worked so well in a booming market, left him over-geared when coal prices slumped last year. Now almost everything he owns – at least that we know about – is draining cash, heavily mortgaged and on the market.
For critics of the industry, Tinkler's plight is a parable for Australia, doubling and tripling up on coal. It was always too easy, raking in cash during the China-fuelled commodities boom, and now it’s over. It is also a tale of how Australia celebrates – then turns upon – ballsy entrepreneurs like Nathan Tinkler or Alan Bond, who come from nothing and gamble their way to the top.
Last week’s disclosures finally confirmed the true extent of Tinkler’s debt to the hedge fund and its clients, including palm oil kings the Kuok family and Martua Sitorus: a one-year, US$634m loan signed last April, after Tinkler pulled off his third big deal, the three-way merger of Whitehaven Coal, Aston Resources and one of his private companies.
The loan was mainly secured against Tinkler’s resulting stake in Whitehaven, then worth as much as $1.1bn. But coal markets were softening and as soon as the deal was done Whitehaven shares started falling and never recovered.
Under increasing financial pressure, Tinkler tried and failed to reprivatise Whitehaven at a hefty premium to the market. In July the inveterate coal bull also committed to pay $28m for a one-third stake in listed resources company the Blackwood Corporation, majority-owned by Singapore commodities trader the Noble Group – Tinkler’s early backers in the Middlemount deal.
Tinkler created Mulsanne Resources to take up the Blackwood stake but the deadline for payment came and went. After months of stalling and negotiation, Blackwood finally lost patience and liquidated Mulsanne, a $2 shelf company. At first the dispute looked like a mere nuisance for Tinkler, by now battling on many fronts as the tax office moved against a string of his companies, including the prized footy clubs, and receivers claimed his aircraft.
Tinkler would gradually settle his tax issues but Mulsanne was turning into a disaster: he faced possible claims of insolvent trading and breach of director’s duties, and in March suffered the indignity of a public grilling in liquidators’ examinations in the NSW supreme court.
Meanwhile Whitehaven shares had halved and there was widespread speculation Tinkler was in breach of his loan to Farallon, with accumulated principal and interest of $700m.
Tinkler was crunched between his two biggest backers, commodities trader Noble and hedge fund Farallon, both after blood.
He put his stud farm up for sale. Tinkler was hoping to get $150m on a walk-in, walk-out basis but there were no bidders at anything like the price he wanted. Agents were appointed to sell his Brisbane mansions. Blackwood rushed to court to freeze Tinkler’s assets. Something had to give.
Finally, last Wednesday, it did, when the Farallon-led loan syndicate took control of Tinkler’s Whitehaven shares. Technically a “sale” at $2.96 a share, the transaction was more like a lender foreclosing on a borrower in default.
Farallon and its clients converted Tinkler’s debts to equity but at the agreed price per share they would only recover a maximum of $565m – not enough to repay the principal, let alone accumulated, interest.
Farallon are hoping Whitehaven will bounce back now the uncertainty over Tinkler's stake is resolved. By attributing a notional value of $2.96 per share to Tinkler’s stake they are trying to talk the stock up. If Whitehaven's shares go even higher in the next nine months, Farallon and co have agreed to count the increase against Tinkler's outstanding loan balance.
Whitehaven is generally considered undervalued but the shares rallied just 4% on Tinkler's exit, to $2.20. It is far from clear whether they will ever recover enough to pay off his loan to Farallon. Worse, there was analyst speculation last year – denied by Tinkler – that any “sale” of his Whitehaven stake could crystallise a large capital gains tax bill, given the small amount of equity he contributed to buy the asset.
By agreeing to the Whitehaven deal, Tinkler appears to have freed up enough cash – paying $12m to Blackwood on Thursday – to get them to drop the proceedings against Mulsanne.
Where does all this leave him? In the March liquidators’ examinations Tinkler told a packed courtroom his wealth was “not really” tied to his stake in Whitehaven and that the Tinkler Group Family Trust, controlled by his wife, had assets worth up to $1.4bn.
The sky-high asset figure had most observers scratching their heads. All Tinkler’s best-known real estate assets are mortgaged – to Farallon, Westpac and even US investment bank Jefferies. Tinkler’s unlisted exploration company, Aston Metals, also in debt to Farallon, has rights to the low-grade copper/lead/zinc deposit at Walford Creek, in remote north-west Queensland – a challenging project which faces opposition from the local Indigenous community. At one stage Tinkler hoped to value the project at $75m but well-placed industry sources are sceptical.
Tinkler Group’s development arm, Buildev, has struggled to complete projects and has stranded assets like land on the former BHP steelworks site at Newcastle, where a proposed coal loader – rejected by the NSW government – was to be built.
Hunter Rail and Hunter Ports – whose logo is still worn by both the Knights and the Jets, who are without a major sponsor – are remnants of Tinkler’s grand vision for a vertically-integrated Australian coal company. The Hunter Sports Group, owner of both clubs, is a cash drain.
It is a motley collection of assets, all encumbered. Possibly there are less readily identifiable assets associated with Tinkler – offshore, for example, or belonging to the Tinkler group family trust. What we do know is that Tinkler is restructuring his empire, moving to deregister a string of his private Australian companies and setting up new entities in Singapore.
After such a stellar rise, nobody is writing Nathan Tinkler off completely. But from his rented pad in Singapore, it will be an enormous challenge to start again.
• Paddy Manning is writing an unauthorised biography of Nathan Tinkler
http://www.guardian.co.uk/world/2013/jun/28/nathan-tinkler-australia-youngest-billionaire?