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Lifting financial checks and balances

Jeff Wilson from Finlease comments on the current financial climate following the Banking Royal Commission and the challenges that come with the tightening of lending practices.

One of the main focuses from the Banking Royal Commission surrounded responsible lending which has led to the banks asking a lot more questions. In the past, lenders concentrated on the company financials but today, most banks are drilling down further to ensure repayments can be met.

The Banking Royal Commission has seen the big four banks tightening their lending practices so much so that crane businesses applying for finance or business loans may find it more of a challenge than previously.

With 24 plus years’ experience in this sector, and a well known identity in the crane sector, Jeff Wilson from Finlease explains how the tightening of funds might impact the industry and it’s ability to service the predicted levels of construction work in the medium term.

“The Banking Royal Commission has certainly tightened up the amount of loans but it’s still possible to get finance. It’s just that the application process now involves an extra two or three steps for the finance to be approved,” Wilson said.

“This more arduous application process isn’t a result of the banks viewing the crane sector as over heating, there are no fundamental concerns there, it’s more about banks exercising greater due diligence.

“With the Banking Royal Commission, there’s been a big push about responsible lending and they are having to ask a lot more questions. In the past, lenders concentrated on the company financials ensuring it could afford the repayments. Today, most banks are drilling down further wanting to understand how much the directors need for personal living for example.

“In my opinion, this is overkill and a knee-jerk reaction to the commission but they need to be showing that they are exercising responsible banking/ lending. So the banks are asking two three or four more questions to better understand the financial position of the business as well as the directors’ personal positions,” he said.

Many crane businesses are looking at a major pipeline of work as a result of the current construction ‘mega boom’, there are more cranes on the skyline than ever before so from a financial point of view what are the pitfalls and concerns. Can the industry go too big too hard too quickly?

“To my way of thinking, it’s a matter of making sure that you are gearing your funding in line with what you see as your potential work. If you are looking to buy a machine and you’ve got work for the next three years, you may want to match your funding with that work,” Wilson said.

“If you borrow over five to seven years and at the three years the work stops, you’re still stuck with the repayments on the machine. Today it’s more about making sure you understand what your future looks like and funding your purchase accordingly.”

Wilson comments on industry sectors like the renewable energy sector, especially wind farms, that are absorbing ‘top end’ cranes in never seen before numbers and how vulnerable the sector might be to changes in government policy or market pressures, for example.

“I don’t think the sector is massively exposed, because a lot of these major projects, involving big cranes, have such a long lead time and are being managed by ‘international players’,” he said.

“Generally speaking, there aren’t a lot of Australian companies owning big cranes, traditionally they are brought in for specific projects and leave when the project is completed. This is until Max Cranes recently purchased the new Liebherr LTM 11200-9.2 1200t machine the largest crane in Australia was 750t.

“My understanding is that there are another three to five cranes being operated by international players, specifically in the renewable sector. Once these projects are complete these companies will head home taking these cranes with them. My gut feel is that the smaller to medium sized crane companies are not looking to buying big cranes because they are not working on these major projects,” he said.

With state and federal funded infrastructure projects, and continued demand for high-rise residential construction, up and down the east coast, and Westerns Australia’s re-emerging mineral and resources boom predicted to kick in this year, Wilson provides his perspective on how the crane industry is going to cope.

“When you look at the statistics, each state government is still ramping up it’s spending on infrastructure so we haven’t reached a peak of government spending at this point in time so its hard to see an end in sight,” he said.

“In NSW, the general consensus is that there is somewhere between five to eight years of work ahead, in Victoria four to seven years and South Australia the same.

“Western Australia is coming back hard. The mines have gone from construction, three years ago, to production and this led to the down turn. But after three years, the equipment including conveyor belts, big dozers and crushers need servicing and this creates a lot of maintenance work of which cranes are used.

“Also, the WA government has been collecting royalties as production has continued and the state coffers are well aligned, allowing the government to start spending and they’ve recently announced details of a couple of significant projects,” he said.

“Everyone in the Northern Territory is saying it’s a bit doom and gloom at the moment and that’s just because all of the projects that were on are coming to the end of construction process.”

With the crane fleets expanding and being renewed to manage the current demand from the construction sector, Wilson doesn’t see a problem when the cycle finally slows.

“I don’t think this current construction boom will be followed by a massive crash. You will see a number of companies looking to scale back and, in so doing, they will be looking to sell their older equipment overseas where there is strong demand for well maintained Australian equipment from emerging economies likes of India.” 

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