It was a devastating day for the S&P/ASX 200 Index (ASX: XJO) yesterday, posting its worst fall in roughly 17 months. Much of this was attributed to Russia's invasion of Ukraine. However, the news of construction giant Probuild going into administration had its own impact on the ASX.
A perfect storm created by COVID-19 and associated supply chain issues resulted in the company haemorrhaging money. Costs reportedly blew out to nearly $120 million at a luxury apartment construction site in Brisbane at 443 Queen Street.
The scenario begs the question: Will Probuild's collapse have any ramifications for ASX shares?
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How might Probuild's downfall impact ASX shares?
At the moment, it is early in the piece for Probuild. The company entered voluntary administration yesterday. The restructuring team at Deloitte has taken charge in attempting to turn around the disrupted builder.
As the auditor picks apart the business, more details will likely come forward. However, we already know about a few ASX shares exposed to Probuild.
Downer EDI Limited (ASX: DOW) is currently the clearest example of an ASX share at risk. The integrated services company announced yesterday that it had carried out mechanical and electrical services for the Victoria Police building in Melbourne.
While Downer has completed the works, around $30 million in defect liability claims still sit with Probuild. As such, there is the possibility that those funds will not be recoverable. Shares in Downer sold off 3.3% yesterday on the news.
The unfolding situation may also impact CSL Limited (ASX: CSL). Unfortunately, the biotechnology giant could face delays in the completion of its new headquarters and research and development facility.
CSL has engaged Probuild to fit out the office spaces and labs of the $1 billion project in Parkville, Melbourne. Previously, CSL had indicated the facility was on track for completion in early 2023.
Could there be more consolidation to come?
Ironically, the news of Probuild going into administration was shortly followed by Cimic Group Ltd (ASX: CIM) revealing it had received a takeover offer from majority shareholder, Hochtief Australia.
The much larger construction group has had its own challenges in recent years. For example, Cimic wrote off $1.8 billion in 2020 after failing to recover debts in the Middle East.
Nicola Grayson, the CEO of the engineering industry lobby group, Consult Australia, says she fundamentally believes the system is broken. Cut-throat competition and poor risk distribution in the commercial building industry are making it increasingly difficult for construction companies to make money.
