The year the rich would rather forget

The year 2008 may well go down in history as the year Australia’s richest investors lost their mojo. JAMES THOMSON tracks the downward spiral, and measures the rich top 30’s rate of leakage.

By James Thomson

The year 2008 may well go down in history as the year Australia’s richest investors lost their mojo. We track the downward spiral, and measure the rich top 30’s rate of leakage.

This was the year it all came undone for Australia’s wealthiest entrepreneurs.

The debt-fuelled acquisitions, the ingenious financial engineering, the aggressive growth strategies – in just 12 months these carefully-laid plans have laid the rich to waste, with a staggering $30 billion wiped off their fortunes of Australia’s 30 richest sharemarket investors.

It is hardly surprising that these investors have racked up big losses in a year when the benchmark S&P/ASX200 index has fallen more than 40%. But what is surprising is that not one member of the top 30 – supposedly our best and brightest entrepreneurs – managed to increase the value of their portfolio.

In fact, 24 of the top 30 posted losses greater than 40%. Entrepreneurs who seemed headed for billionaire status just 12 months ago are now clinging on to the BRW Rich List for dear life.

Biggest losers

The biggest loser in dollar terms is Chinese-born solar entrepreneur Shi Zhengrong, whose company Suntech Power is listed on the New York Stock Exchange. The value of Shi’s stake in the company has tumbled by an incredible $4.9 billion or 86% since the start of the year as investors have dumped solar stocks and technology companies. Back in May, BRW ranked Shi as the ninth richest man in Australia. With his fortune down to just $805 million, Shi would be lucky to remain in the top 20.

The second biggest loser is Andrew Forrest, founder of iron ore miner Fortescue Metals Group, who saw $4.3 billion lopped of the value of his stake. Forrest’s fortune has been on a rollercoaster ride all year. On 24 June, as Fortescue’s shares soared on the promise China’s boom would last forever, Forrest was worth an incredible $12.9 billion. Today his stake is worth just $2.7 billion.

Close behind Shi and Forrest is James Packer, who lost his position as Australia’s richest man this year. The value of his investment portfolio – anchored by his large stake in casino giant Crown and media company Consolitated Media – has fallen by a whopping $3.4 billion since January, or 62%.

The fall in Crown and Consolidated Media shares has been well documented, but Packer’s poor performance as a stock picker is less well known. Since the death of Kerry Packer in 2005, James has made a series of personal investments in listed companies. With a few notable exceptions – such as SEEK Limited – most of these have been dogs. Shares in Queensland property group Sunland has plunged 82.6% this year, Challenger Group is down 73% and uranium group Wildhorse Energy is down 93%.

Other billion-dollar losers include Frank Lowy of Westfield Group (shares down $1.3 billion or 34.7%), Gerry Harvey (shares down $1.4 billion or 65.9%) and WorleyParsons chief executive John Grill (down $1.2 billion or 74.5%).

The winners

Despite losing $1.3 billion, Frank Lowy is perhaps the biggest winner out of all this carnage. With Packer and Forrest’s big falls, he is almost certainly Australia’s richest person, with a fortune around $5 billion.

Property magnate John Gandel can also be considered something of a winner, as the value of his stake in property trust Colonial First State Retail Trust has fallen only 16% during the year; Gandel also sold a number of shares in the last few months.

Platinum Asset Management founder Kerr Neilson has been one of the luckier financial services entrepreneurs. His stake in the company has fallen from $1.6 billion at the start of the year to around $1.1 billion, but the 31% drop is better than the market average.

Decimated by debt

As in past sharemarket collapses, investors have quickly dumped any companies that have worrying debt levels. Former Babcock & Brown chief executive Phil Green – whose fortune fell from $331 million at the start of the year to just $1.8 million – is perhaps the biggest victim of this trend.

Transpacific Industries boss Terry Peabody has also been crushed under his company’s $1 billion debt load, with the value of his stake in the company he founded crashing 80.9% from $1.05 billon to just $200 million since the start of the year.

Asciano boss Mark Rowsthorn has also been decimated by debt, with the value of his stake tumbling from $471 million to $95 million since January.

Even Nufarm chief Doug Rathbone hasn’t escaped debt queries in recent weeks. For the first half of the year, Rathbone looked like he had managed to escape the carnage, with Nufarm shares actually trading above their January price. But by the end of the year the stock was down 30.2% and Rathbone’s stake had dropped from $420 million to $290 million.

Peabody – like crash victims Phil Green and Eddy Groves before him – has blamed short sellers for the sharp fall in Transpacific’s share price. But these entrepreneurs must share the blame – the debt carried by their companies has been blood in the water for the short selling sharks.

Outlook for 2009

There is little doubt that most of the 30 richest investors face a nervous six to nine months as the Australian sharemarket searches for the bottom. Until then, our wealthiest entrepreneurs are likely to continue to take some pretty savage blows.

The fortunes of James Packer, Terry Peabody, Kerry Stokes and Mark Rowsthorn – who all run companies struggling under the weight of hefty debt – are likely to come under further pressure in the new year.

The biggest question is whether wealthy entrepreneurs will start bargain hunting and taking advantage of weakened competitors. During the boom period of the last decade, many rich investors expressed the opinion that asset prices had got out of control, but it remains to be seen who is brave enough – or can get enough finance – to take advantage of the slump.

Already there have been hints of this in the property sector, with developer Lang Walker pushing ahead with his South Australian developments as his rivals put their projects on hold. Then there is billionaire John Van Lieshout, who snapped up a shopping centre on the cheap in November.

The key will be cash. Those entrepreneurs who are either sitting on a pile of cash or run cash-generating businesses are brilliantly positioned to swoop on potential bargains from distressed sellers.

Those rich investors who are choked with debt face another grim year.

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