ABC Learning's board is expected to rebuff concerns about the child care operator's solvency with the delivery of its audited results this month, but its longer term future remains in question.
Contacted by the Herald, ABC's chairman, David Ryan, would not confirm whether the delays to the release of its accounts were due to questions over its solvency. "We are in a trading halt, we have no comment to make," he said.
But sources close to the company said the latest delays are due only to the size of the task facing ABC's auditors, Ernst & Young, as they prepare the 2007-08 accounts and restate earnings from prior years.
ABC said this week it expects to release its audited accounts this month which will "eliminate any further speculation and uncertainty".
ABC will face a new set of challenges when its accounts - which are expected to show losses exceeding $437 million for 2007-08 - are finally lodged.
The accounts are expected to provide a treasure trove of information for litigation funder IMF, which is preparing a class action against ABC based on materially misstated earnings over previous years and bullish forecasts that "had no reasonable basis".
The Australian Securities and Investments Commission is also understood to be investigating ABC over a corporate structure that helped the company avoid payroll tax, as well as payments from child care centre developers which inflated its earnings.
The longer term problem for ABC, though, is reconciling its reduced operations with debts totalling $1.3 billion. About $850 million of this is owed to a syndicate including Australia's big four banks. The remainder consists of convertible notes.
In its half-year results ABC reported negative operating cash flow of $19.8 million, with the interest bill on its massive debt load eating up any earnings from its businesses in Australia, New Zealand, the United States and Britain.
Even if ABC manages to satisfy the markets it can meet its immediate financial obligations, market experts are still questioning how it will pay down its loans when they fall due. The sale of its assets in the current market may not raise enough to cover its debts.
Further asset sales could also trigger the conversion of its notes at a figure based on ABC's current share price - which would mean the noteholders would receive enough shares to give them control of the company.
The Singapore Government investment fund, Temasek, ABC's second largest shareholder, would not be drawn on the latest controversy yesterday.
