A switched on agricultural commentator has written the following commentary on the proposed Cubbie Station sale. I agree with it.

The decision by the Treasurer and the Federal Government to allow a consortium from China, Japan
and Australia to jointly bid for the Cubbie Group, has prompted widespread discussion and debate.

The Foreign Investment Review Board, which advises the Government on these matters, has
obviously concluded that the national interest has not been undermined by this particular consortium’s intentions.

There will be many who agree with this conclusion, and probably an equal number that disagree.
Unfortunately, some of the debate has been tinged with xenophobia, and may have ignored
relevant facts in relation to Cubbie’s current debt dilemma, which preceded these events.

Cubbie was first developed for irrigation from grazing country around 1983. Under various forms of
ownership, it has developed 93,329 hectares comprising 22,256 ha or furrow irrigation and water
storage capacity of 538,800 megalitres, with potential to irrigate a further 11,000 ha.

Development expanded rapidly in the 1990s, when the cultivated area exceeded 40 kilometres
wide and the property and its water storages became visible from satellite imagery mapping the
area from Brisbane to Adelaide.

So successful was this development, that from its humble grazing beginnings, Cubbie was
subsequently able to harvest water, wheat, cotton, corn, chickpeas, barley, sunflower and sorghum
in huge volumes.

Dogged by a series of drought years (7-8), by 2008 Cubbie was in dire straits. In November 2008,
Suncorp and the NAB, its major lenders, engaged McGrathNicol to investigate and report on the
financial position of Cubbie, and monitor its attempts to repay its debts.

Prompted by drought-induced low production and rising debts, Cubbie was first offered publicly for
sale in August 2009, when expressions of interest were sought, and/or a capital injection. Nothing
satisfactory was forthcoming.

In October 2009, Cubbie was placed in voluntary administration (under McGrathNicol) from which
it did not emerge until July 2010 when McGrathNicol, were appointed Deed Administrators.

This meant that liquidation could be avoided and restructuring strategies and opportunities could
be pursued.

In October 2009, inter-company loans within the 11 companies in the Cubbie Group had reached
$320 million, owed mainly to Suncorp and the NAB. The administrators placed credit limits on staff
for expenditure, with a maximum limit of $20,000.

In July 2010, following significant seasonal improvements and water availability, and the banks’
decision to bankroll the 2010-11 crop, this credit limit was expanded to $100,000, which meant five
designated employees could collectively outlay up to $500,000.

At that time, Cubbie was said to have enough water to plant 21,158 ha of cotton with potential
to produce 222,100 bales worth in excess of $126 million. Although no official data is publicly
available, the total value is rumoured to have exceeded this estimate by around 10 per cent.

This background shows that Cubbie has been on financial notice, and in trouble with its lenders, for
at least four years, during which time no acceptable buyer of first or last resort was found.

Had it not been for the goodwill provided by its lenders, Cubbie would have been subject to
foreclosure by its lenders, and would be either sitting in their bad debts portfolios, or off-loaded at
a significant loss, most likely in much smaller, more financially digestible portions.

Consequently, an offer to purchase the entire entity should be welcomed, rather than condemned,
particularly given the uncertainty created by the current controversy over the Murray-Darling Basin
Plan, and its unknown impact on Cubbie’s future.

It would certainly have been preferable for the potential buyer to be of Australian origin, but with
none willing to take up equity on commercial terms, the only alternatives are a foreign buyer; a fire
sale by the two major lenders; or ongoing financial support from Suncorp and the NAB.

Given current trends in cotton prices, rising energy and other input costs, and Cubbie’s current debt
levels, the first two options are most likely the only ones still seriously in play.

What is intriguing though is this: If three consortium members, none of whom are cotton growers
or investors in cotton production, can see future potential in Cubbie (at a price), why cannot an
experienced, professional Australian-dominated cotton conglomerate see the same potential?

In all fairness, Australian companies and consortiums have had an equal opportunity to purchase
Cubbie, and have failed to get past the front gate. And it is, after all, the prerogative of the owner
to take the best price. Very few farmers have a history of accepting lower bids.


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