Australia's Costello: private equity buyouts risky
SYDNEY, July 1 (Reuters) - Australian Treasurer Peter Costello warned on Sunday of potential dangers of private equity takeovers of listed companies, if they used high levels of debt.
The government wanted to ensure private equity firms were not using high leverage and high borrowing simply to minimise tax, Costello said in an interview with Sky News, aired on Sunday.
Australian financial regulators were looking at private equity funds in relation to leverage, corporate stability, stability in the financial system, and tax, he said.
They would advise the government on their findings, he said.
"When we're talking about private equity funds, we're talking about a new phenomena where they leverage these companies very, very highly -- now that can be risky," Costello said.
"I've sounded a warning in relation to that. If you have very high leverage, very large borrowings, a downturn in the company, it can put the company at risk."
Costello pointed out that the most highly publicised private equity offer in Australia, the Airline Partners Australia bid for Qantas Airways Ltd. (QAN.AX), had been "rejected by the market".
In May, the Airline Partners Australia consortium, which included Macquarie Bank Ltd. MBL.AX and private equity firm Texas Pacific Group [TPG.UL], admitted defeat in a A$11 billion
($9 billion) takeover bid for Qantas when it failed to get 50 percent of shareholder acceptances in time to meet a deadline.
Kohlberg Kravis Roberts [KKR.UL] and two of its private equity partners also failed in early June to buy Australian retail giant Coles Group Ltd. CGJ.AX, which is now subject to a bid worth up to around A$20 billion by homegrown listed Wesfarmers (WES.AX).
The Wesfarmers bid is in conjunction with Macquarie Bank and private equity funds Pacific Equity Partners and Permira.
Other failed private equity buyout attempts in Australia this year have involved targets APN News & Media (APN.AX), Orica Ltd. (ORI.AX) and Flight Centre Ltd. (FLT.AX).
However, last month Australia's richest man, James Packer, recently handed control of his family's media assets to private equity partner CVC [CVC.UL] to focus on his gaming empire.
($1=A$1.18)
((Reporting by Michael Byrnes, editing by Jacqueline Wong; michael.byrnes@reuters.com; Reuters Messaging: michael.byrnes.reuters.com@reuters.net; +61-2-9373 1825)) Keywords: AUSTRALIA COSTELLO/EQUITY . Keywords: AUSTRALIA COSTELLO/EQUITY =2
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