MAC: Mines and Communities

Australia's Hardie Signs A $3.1 Billion Asbestos Agreement

Published by MAC on 2005-12-01

Australia's Hardie Signs A $3.1 Billion Asbestos Agreement

1st December 2005

MELBOURNE - The board of building materials group James Hardie Industries Ltd. approved a long-delayed final agreement on Thursday to pay more than A$3 billion ($2.2 billion) to victims of asbestos-related diseases in Australia over 40 years.

The company is still waiting for a final decision from the Australian tax office on whether it will allow the payments to asbestos disease sufferers to be tax deductible, a key factor on which the agreement hinges.

"All parties involved in the negotiations have agreed it is in the interests of asbestos claimants that James Hardie is, and remains, financially strong and able to continue to fund its business growth. We expect the proposed funding arrangements will allow this as well as fulfil James Hardie's funding commitment," Chairman Meredith Hellicar said in a statement.

After it gets word on tax treatment of the payments it will seek approval for the agreement from its lenders and shareholders. The company's first payment into the new fund will be A$154 million. That compares with Hardie's sales last year of US$1.2 billion and a net profit of US$150 million. Accountants KPMG estimated in June that Hardie would face around A$3.1 billion worth of claims over 40 years. It said the net present value of that estimate was A$1.6 billion.

Hardie's shares, clipped this year by uncertainty over the asbestos deal, last traded up 3.2 percent at A$8.68 in a weaker market. Assuming the compensation payments will be tax deductible, six analysts have a 12-month price target on Hardie's shares between A$8.50 and A$10.75.

Citigroup and Credit Suisse First Boston estimate tax deductibility of the asbestos compensation payments is worth around 75 cents a share.

The company used asbestos as a fire retardant in wallboard and other products until Australia banned the material in 1984 because it contains tiny fibres that settle in the lungs and can eventually choke victims to death.

Hardie was forced to provide more funds after a state government-commissioned inquiry found last year that the company misled the public in 2001 about money set aside for asbestos disease sufferers and made the fund seven times too small.

In line with an agreement reached a year ago, the final terms of the deed cap Hardie's annual payments to the compensation fund at 35 percent of annual net operating cash flow, with provisions for the cap to fall over time depending on the group's performance and the claims outlook. (US$1=A$1.35)


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