Business bites: car-policy slash drives rise … Fortescue not so wise … Flash Cash Guy

Car-policy slash drives rise. Here’s a reminder for Joe Hockey and Tony Abbott about the cost of axing the Labor Party’s last budget move to tighten taxation of salary-sacrificed cars and packages (around $1.4 billion over four years). Joe and Tony decided to junk that policy soon after being elected in late 2013 in their full, brief flush of power. Their justification was helping the Australian car industry, which Tony and Joe promptly helped to close through a combination of inept policy explanation and bumbling arrogance. This morning salary packager and fleet manager Smartgroup raised its half-year earnings guidance 35% ahead of its annual general meeting later today. That boost is a direct result of two things — the axing of the Labor changes (which cost the budget vital revenue growth) and the boom in car sales, especially luxury cars, since the start of this year.

Smartgroup’s biggest contract is with the Defence Department — it accounts for 20% of the business and is due to expire in June. Defence pay has been in the news recently, with the government trying to stiff employees and then grudgingly allowing a small rise — while asking service people to return to Iraq.

Another big client is the WA Health Department. Talk about irony on irony — a salary packager and fleet manager mining the taxpayer purse to benefit shareholders? Of course, Smartgroup’s chairman is former Macquarie banker Michael Carapiet. — Glenn Dyer

Fortescue loses face. According to media reports this morning, a desperate Fortescue Metals finally got a $US2.3 billion bond refinancing away overnight — but not before it was forced to pay through the nose. According to the reports, the bond will cost Fortescue a massive 10.25%. The seven-year non-callable (meaning the buyers can’t ask for early repayment) bond was issued at a yield of 9.7% (itself pretty onerous), but was discounted (to get buyers interested) to produce a yield of 10.25%. That’s junk territory.

The successful issue raised less than the $US2.5 billion sought in March, which ended up being pulled because Fortescue didn’t like the yields it would have to pay — reported to be around 8.5%. Now it’s paying much more, a sign of the company’s desperation. So much for all that confidence last week when it issued its March quarter production report. This bond is repayable in 2022, which extends the company’s debt profile and lessens the debt burden for the next couple of years. So Fortescue has raised less at a higher yield — call that a big loss of face and the cost of corporate ego. Not helping this issue was the move yesterday by ratings group S&P to downgrade Fortescue’s credit rating — ouch! — Glenn Dyer