Tuesday, December 19, 2006

Let's party like its 1987

Costello warns of risky boom-bust climate by Katharine Murphy
[Australia's Treasurer] PETER Costello has compared the current business climate with the boom-bust cycle of the 1980s, delivering his sharpest warning about the risks posed by private equity raiders.

"Other than the change in interest rates it does not seem to me as if there is all that much difference between what is happening in some of these companies and what happened in the late '80s," Mr Costello told the ABC.

The 1980s saw a rush of risky corporate takeover activity by Australian entrepreneurs, including Robert Holmes a Court and Alan Bond.

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The deals were financed by cheap debt, but the cycle turned when interest rates rose, sending the boom crashing down into a bust.

Mr Costello said yesterday he had no in-principle problems with private equity, but he warned high corporate debt levels associated with heavily geared deals "can be unsustainable".

The Treasurer's remarks follow recent concerns by Reserve Bank governor Glenn Stevens, and other leading private sector bankers, about the consequences to the economy of excessive corporate debt.

Mr Costello also warned the Macquarie Bank-led private equity consortium behind the $11 billion takeover of Qantas that there would be no bail-out from Canberra if the company got into financial trouble.

"They are on their own. Any suggestion that you could take over an airline, get yourself in trouble, then ask the taxpayer to bail you out is not on," Mr Costello said.

Mr Costello's stance was backed by Prime Minister John Howard, who said the company would not get help from Canberra if fortune turned against it.

"We won't be engaging in any economic bail-outs," Mr Howard said yesterday.

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