A combination of local and global pressures could see the number of domestic insolvencies increase significantly over the next 12-24 months, particularly in the mining services sector according to leading law firm, Henry Davis York (HDY).
According to Mark Schneider, the mining services sector, which has been held out as propping up the Australian economy for some time now, is under increasing pressure.
“A number of mines and associated mining projects are moving from the construction phase to the operational phase and others have simply been mothballed completely as the big miners look to cut costs,” Schneider said.
“This sector has also been affected by fluctuating commodity prices and exchange rates, and now the consensus view seems to be that growth in this sector is slowing.”
“In the main, banks with large exposures in the mining services sector have been very considered in working with their customers to address the challenges they face. However the changes in the mining services industry have wide-reaching effects.”
“Some businesses have had to deal with a yellow goods market where demand was once so high that second hand equipment was selling for more than brand new equipment, but where there is now no demand and an over-abundant supply of expensive parked-up equipment.”
“In addition, there are a host of other businesses in mining areas that are affected by the decrease in activity in this sector, notably accommodation providers and other suppliers to the mines,” Schneider said.
Schneider also commented that “it is interesting that there is certainly available capital out there, both domestically and internationally, but there has not been a rush of investment into distressed assets in Australia. This could be for a range of reasons, including because of the perceived value of particular assets, regulatory and structural issues within industries and the relative number of opportunities in other depressed markets, for example, the US, UK and Europe.”
Hi Mark, I totally agree. We have seen a significant increase in the number of distressed companies particularly in the SME to Mid Market space. The key is to act with a sense of urgency. Early intervention is key and those that adopt that approach and seek assistance will be able to navigate through the next 12 months, a period which is going to get worse before it gets better.
Regards
Michael