Under-pressure builders facing "zombie" apocalypse
Major building companies, straining under the burdens of rising costs and labour shortages, are at risk of becoming corporate "zombies", new research suggests.
KPMG Australia data has revealed the number of ASX-listed "zombie companies" has increased 31 per cent in the past six months, up from 94 in May to 122 companies today.
Businesses are considered "zombies" when they show signs of financial distress but remain solvent and continue to trade.
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Major Australian building companies are at risk of becoming "zombie" companies, new research has found. AAP
While housing demand in Australia remains high, but cost increases and skills shortages are putting enormous strain on builders and developers.
KPMG's Amanda Coneyworth says although the number of "zombie" construction companies listed on the Australian Stock Exchange (ASX) was relatively low, the number of small and medium-sized businesses was rapidly growing.
"Risks in the sub-contractor market are impacting the profitability of builders and developers up the chain which if not rectified will potentially see larger construction companies tip into zombie territory," she said.
"To avoid this, developers and builders need to work closely with their sub-contractors, lenders and other stakeholders to proactively mitigate risks associated with costs increases and delays to complete developments."
A range of economic conditions is causing turmoil in the building industry, including supply-chain issues, rising interest rates, and pandemic-era stimulus ending.
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The number of ASX listed "zombie companies" has increased 31 per cent in the past six months, figures from KPMG Australia show. AAP
The top industry sectors for "zombie" companies on the ASX are mining followed by technology and then consumer and retail.
Mining companies comprise 48 per cent of all "zombies", largely driven by the crash in nickel and lithium prices.
The total market capitalisation of the growing horde of zombie companies is now $3.1 billion, up from $2.9 billion in May.
KPMG's head of turnaround and restructuring, Gayle Dickerson, says businesses have little breathing room to remain solvent amid stubborn inflation, high interest rates and a gloomy consumer outlook.
"These factors are simultaneously biting into profit margins and increasing debt burdens which is turning once stable businesses into zombies."
But Dickerson says there is light at the end of the tunnel for struggling businesses, with interest rate cuts expected by early next year and the federal government's safe harbour laws.
The legislation provides protection for company directors from personal liability for insolvent trading if the business is attempting to restructure.
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