Who profits from our foreign aid? Export Finance and Investment Corporation steps up

Yesterday we detailed how GRM International grew from a cattle company to a big player in global aid delivery. Today we detail GRM’s movements during the GFC.

With Packer shedding assets and money during the GFC, the Packer guarantees that had supported global aid company GRM International in gaining government contracts and sister company Austrex in its export contracts during their period of rapid growth were no longer secure. James Packer was now concentrating on his casinos.

Behind the scenes in the Brisbane headquarters of GRM and Austrex, plans were under way for GRM’s managing director Kim Bredhauer, directors David Crombie and Kenneth Warriner and their business associates to buy the companies from Packer. But timing, in the midst of the GFC, was tough.

While very successful in winning aid contracts, GRM is not a sure bet. As the annual report of its UK-based arm noted “any change in the aid delivery policies of the British, Australian or Swedish aid governments would have a significant impact upon future revenue earning potential”:

While ASIC records provide no information about GRM’s finances, the UK group accounts are more revealing. Despite the hundreds of millions dollars flowing through the group, it only ever declares small profits in the UK. In 2008, GRM International Group Ltd ( UK) declared only about $2,300,000. No breakdown is provided about what part of the business generates these profits, although more than 40% of turnover is said to be in Asia, including China.

If the contracts were going to continue to flow, ongoing guarantees were needed. Enter investment banker Andrew Morgan and John Eales, ex-captain of Australian Rugby Union team, who, along with Bredhauer, were the private aid company representatives on Downer’s Aid Advisory council. Eales and Morgan set up Catapult partners, which arranged and financed the two buyouts of GRM and Austrex, to date the only business activity advertised on the Catapult website.

The government-owned Export Finance and Insurance Corporation (EFIC) provides finance and insurance solutions to help Australian exporters who cannot get bank finance to develop their overseas business. It promotes itself as a lender of last resort. On the board of EFIC is president David Crombie, a current director and shareholder of GRM and its managing director before the Packer family bought the company.

He is also president of the National Farmers’ Federation and was described as a Packer employee by the Financial Review in 2006. According to ASIC records, he was also a director of Austrex until he resigned in September 2009.

Two new companies — Global Agtrade and International Project Holdings (IPH) — were set up. IPH (since renamed GRM International Holdings Pty Ltd), which now controls the group, has multiple owners with private companies of Bredhauer and director of Consolidated Pastoral Holdings Kenneth Warriner holding substantial shares. Some shareholders are based in Australia while others live in Dubai and one company is based in the British Virgin Islands tax haven.

Just one week before Christmas, Andrew Morgan became a director of Austrex, which two days later was sold by GRM International Holdings in London to Global Agtrade of which Morgan is a director and shareholder. On December 23, Austrex reported to ASIC that EFIC now held a $100 million charge over all its assets.

On December 22, Packer sold GRM International Holdings in the UK and all the rest of its subsidiaries to IPH. At the same time, Bredhauer moved from Brisbane to a marina in Dubai.

Two months later in February 2010, IPH reported to ASIC that EFIC now also held a $40 million charge over its assets including all its operations involved in delivering aid for AusAID, the UK Department for International Development and the European Union. Ten days later, Crombie and Eales became directors and shareholders of IPH, the new controlling company of GRM.

No public announcement was made about the EFIC loans until April 2010 when EFIC issued a media release announcing a $10 million insurance bond to GRM. According to EFIC, this “revolving” loan, allows “certain [GRM] group companies” within Australia and abroad, to call on the Australian government to “provide advance payment and performance bonds on its behalf”.  So far, the loan is being used for bond to secure a contract for GRM to set up a facility for farmers in the United Arab Emirates.

No public information has ever been released about the Austrex loan. When questioned about the loan, EFIC spokeswoman Jennifer Whittle told the ACIJ that the guarantee facility was not publicly reported at Austrex’s request. Neither EFIC nor the company will reveal the amount of the Austrex assistance. When first asked about it, Morgan, now a director of Austrex, said the industry is highly competitive market. “We’d prefer that the EFIC support that it gives to Austrex aren’t put out in the paper. They help us and we don’t want our competitors to get the same sort of help.”

According to GRM’s deputy managing director Darryn Purdy, obtaining the EFIC loan to cover the company after the sale was standard operating procedure.

“You have to have working capital to successfully operate and deliver capital, and it’s certainly a standard process in business.”

But Luke Fletcher, spokesperson for Jubilee Australia, a development NGO that has spent the past six years monitoring EFIC, says providing finance to a company so that a sale can proceed is outside EFIC’s mandate.

“EFIC is set up … to support export trade contracts and assist with providing products that remove some of the specific commercial risks and difficulties from exporting. It is not set up to provide general financial assistance, financial viability or solvency to companies generally involved or having an undefined exporting profile.”

According to Whittle, EFIC’s relationship with the companies only began after the GRM and Austrex sales had gone through. But Morgan, who arranged the loans, told the ACIJ that the applications for financing had been submitted “many months before” the sale, saying this was “normal with this kind of credit support”. He wouldn’t reveal how much the loan is for, though he said it was “nowhere near $100 million”, which is the amount of the charge over Austrex’s assets. He said the EFIC financing was only necessary because of the sale: “Under Consolidated [Press Holdings] it wasn’t necessary.”

While he said the buyout could have gone through without the EFIC loans, Morgan acknowledged that the process would have been a lot more difficult.

“It’s always a stressful time doing these transactions and the most stressful thing is to line up your financing,” says Morgan. “EFIC gave us a fair bit of confidence that we could actually transact.”

Did it make any difference that Crombie was on the board of EFIC? Morgan, who described Crombie as one of the “straightest corporate people in Australia”, said: “It’s probably counted against us because we had to jump over all that stuff …because we had to prove that even more. EFIC’s a very conservative organisation.”

Despite being a director of GRM, EFIC board member Crombie denied there was a potential conflict of interest regarding the loans’ approval.

“I have absolutely nothing to do with the management of GRM nor with the management of EFIC,” he said.

But according to documents lodged with ASIC, Crombie has been a director and secretary of GRM International Pty Ltd since 1977 and since the loan was approved has taken up a directorship and a 10% share in the company’s new owner, GRM International Holdings Pty Ltd.

Crombie told the ACIJ he was surprised to learn the ASIC documents still list him as a secretary of GRM.

“I understood I wasn’t [the company secretary], I’ve since checked and found that the documents do say that, but I haven’t acted as secretary for something like 20 years,” said Crombie, who insisted that all interests he had in the companies were declared to EFIC. “Of course any conflict of interest was declared, that’s standard procedure.”

Crombie said he declared a “previous interest”, not a present interest in Austrex because he said he was involved in that company “a long time ago”.

Austrex’s financial accounts have always clearly listed Crombie as director and despite submitting a signed letter to ASIC in September last year recording his resignation Crombie told the ACIJ he resigned from the Austrex board more than 20 years ago:

“This was another administrative oversight where my resignation was not confirmed,” he said, admitting that  he and Austrex were to blame for failing to ensure the records were up to date. “I’ve not had any engagement with Austrex for over 20 years. This is ancient history.”

Whittle confirmed that Crombie had registered his directorship in GRM when he joined the EFIC board and had reminded the board of this when the loans came before it for ratification. Whittle told ACIJ that she had no record of Crombie having ever declared an interest in Austrex.

According to Whittle, both transactions were delegated to EFIC staff because they were below the threshold required for the board to be directly involved in approving the loans. She said the level of the threshold was confidential and was adjusted every six months.

GRM and Austrex no longer operate out of the same office although there are still connections — Morgan and Eales are involved in both companies and Warriner who, under new owner Terra Firma, has continued as managing director of Consolidate Pastoral Holdings is a director and substantial share holder in the new GRM holding company. Crombie and Bredhauer are now not only directors but also shareholders in GRM.

The 2009/2010 financial year has been another good one for GRM with $89 million worth of new AusAID contracts for legal development, financial strengthening, auditing, training, customs and excise projects in the Solomon Islands, Indonesia, PNG and East Timor. This is on top of more than $100 million worth of old contracts transferred to the new owners. They have even diversified with a $3 million contract to manage real estate for the Customs and Border Protection Service.

Meanwhile, the Solomon Star reported that a deal for Austrex to export 1000 cattle to the Solomons Islands still awaits finance.

Postscript:

If you’re interested in working for GRM, there is an AusAID-funded job being advertised in the Solomon Islands for a resource manager to support the development of the tax system. It comes with more than $50,000 accommodation and travel benefits — more if you have children. As you will not be living in Australia, you won’t have to pay tax. You need to nominate your monthly fee and if you prefer to work through a trust, you need supply the name of your trustee company.

Wendy Bacon is director of the Australian Centre for Independent Journalism and Flint Duxfield has recently completed a postgraduate journalism course at UTS.