James Hardie Asbestos Compensation Scheme Millions Short After Big Dividends

The asbestos compensation body funded by James Hardie may need to draw on a taxpayer-backed loan arrangement to pay asbestos victims despite James Hardie showering its own investors with $US556 million in dividends in the past two years.

Under a legal agreement, James Hardie pays a set amount every year to the Asbestos Injuries Compensation Fund (AICF) to compensate victims suffering from asbestos-related diseases.

That amount can run to many millions of dollars and is set at 35 per cent of its operating cash flow.

That prompted a warning that Hardie's planned contributions alone may not be sufficient to cover the fund's costs for claims and it may need to tap a government-backed loan set up in 2010 when there were concerns that the global financial crisis could affect the fund's sustainability.

The financial health of the fund is assessed annually by actuaries, KPMG, and in its latest report KPMG increased the "central estimate" for liabilities by 10.4 per cent to $1.9 billion

The NSW and federal governments agreed to provide the loan, of up to $320 million, for the AICF if contributions from James Hardie were insufficient to meet claims.

CIMB analyst Andrew Scott, in a research note, warned of a potential public backlash if the company drew on government funds given housing markets are now improving.

"Our forecasts now suggest that further drawdowns of the government loan by the AICF are likely to be required from financial year 2016 ... we believe a deficit may be sustained for some time," Mr Scott told clients.

On CIMB's numbers, the valuation of the asbestos liability has increased to $895 million, or $2.02 per share, and the AICF is forecast to be short $82 million in 2015-16.

"On our modelling ... [the AICF will have] insufficient funds to meet all expected commitments in FY16 and would see a further drawdown on loans from the NSW and federal governments," Mr Scott told clients.

"The fund may be unable to cover claims costs purely from James Hardie contributions for a number of years."

The fact that James Hardie paid $US556 million in dividends in the 2013 and 2014 financial years raised the ire of independent senator Nick Xenophon.

"The bottom line is if James Hardie can afford $500 million to give to shareholders it can find the money to give to dying victims of their product," Mr Xenophon said.

"If James Hardie doesn't come to the table they deserve the scorn of the Australian public. They have got through the GFC."

The situation comes as the company's top executive received a substantial pay increase last year. According to James Hardie's 2014 annual report, chief executive Louis Gries received $US11.7 million in total pay in 2014, up from $US7.9 million.

The AICF was formed in 2006 after an agreement between James Hardie and the NSW government.

The loan facility has been used twice and was quickly repaid, but the intention of the provision appears to have been ensuring James Hardie could get through the global financial crisis.

US housing starts, on a rolling 12-month basis, have risen from their GFC bottom of around 554,000 and they are running at 974,000 for the year to July.

James Hardie is spending $US200 million a year over the next three years expanding its plant capacity in the US, where the building materials supplier derives 80 per cent of its sales.

James Hardie spokesman Sean O'Sullivan said the company had just contributed $US113 million to the fund and he stressed that the AICF is an entirely separate entity. He said it is important that the integrity of the Final Funding Agreement is upheld.

"It delivers a level of certainty which is why investors are comfortable investing in James Hardie," Mr O'Sullivan said. "It balances the needs of all stakeholders including shareholders, claimants and future claimants."

According to the KPMG actuarial report, the number of claims in 2013-14 came in at 608, 12.6 per cent above expectations.

But CIMB says that the key driver of the liability increase was the 23 per cent jump in expensive mesothelioma claims to 370. In 2013-14 the average size of mesothelioma claims was almost three times that of the next largest disease category.

Chinese Cars Made With Asbestos Expected To Be Recalled

China is poised to surpass other leading, industrialized nations in car manufacturing with inexpensive cars. Instead of taking decades to adapt and revolutionize car manufacturing, the Chinese industry has just taken a few short years to catch up with the rest of the world. However, this incredible transformation has come at a cost.

In recent months, many Chinese car brands have come under fire for poor safety and quality in the rush to become a viable car alternative on the international market.

Nearly 25,000 inexpensive Chinese cars from two car manufacturing companies Great Wall and Chery are expected to be recalled in Australia after it was discovered that asbestos was used in gaskets. Many industrialized nations like Australia have banned asbestos in mining and manufacturing as well as have banned the importation and exportation of asbestos.

After the discovery of the asbestos gaskets, production at both companies stopped. Great Wall and Chery are currently researching potential replacement materials for the toxic gaskets, but initially said that car production did not include asbestos.

As of Tuesday, the Australian Competition and Consumer Commission is debating whether to issue a recall of the 25,000 cars imported into the country. A final recall decision is expected later this week. Ateco Automotive, the company in charge of importation of both Chinese brands, initially ruled that the asbestos gaskets pose a “negligible” health threat for drivers and passengers.

Up until it was banned in most countries, asbestos was a common material used in car manufacturing. Besides gaskets, asbestos was used in other automotive parts like  brakes, brake components, clutch linings, disc and drum brakes, and transmission plates.
A naturally occurring set of minerals, asbestos was widely used in a variety of products up until the late 1990s and early 2000s in many industrialized nations. After it was discovered that asbestos is a carcinogen akin to cigarette smoke, most countries banned the material.

Exposure to asbestos is the leading cause of a rare form of cancer called mesothelioma. Affecting the delicate protective lining of the lungs, heart or abdominal cavity, mesothelioma can take upwards of several decades to present symptoms. Once in play, mesothelioma is a fast moving disease without a cure.

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