UPDATE:James Hardie Admits Moral Obligation For Asbestos

	 By Morag MacKinnon
	 Of DOW JONES NEWSWIRES
										

SYDNEY (Dow Jones)--A week after the release of a damning report into James Hardie Industries NV's (JHX) handling of asbestos liabilities, Chairwoman Meredith Hellicar admitted Tuesday that the company has a moral obligation to compensate victims.

And in an unsurprising move, Chief Executive Peter Macdonald and Chief Financial Officer Peter Shafron will "stand aside" from their positions during an investigation by the Australian Securities & Investments Commission, the nation's corporate watchdog.

The two will remain with the company, though an acting chief executive and chief financial officer will be appointed, James Hardie said.

Commissioner David Jackson, who led a state government inquiry into James Hardie's establishment of a fund in 2001 to compensate victims of asbestos-related illness, found the company misled investors when it said it had sufficient funds.

The A$293 million set aside in the Medical Research and Compensation Foundation was based on false information provided by an actuarial report commissioned by James Hardie, and its true value should be between A$1.5 billion and A$2.24 billion, Jackson said.

In his 1,000-page report, Jackson said funds currently set aside for asbestos liabilities will likely be exhausted in the first half of 2007.

Macdonald and Shafron were singled out in the report for possible breaches of their duties as executives. They could face charges under the Corporations Act.

ASIC launched its investigation into James Hardie and the circumstances surrounding the setting up of the foundation last Wednesday.

Macdonald will continue to be based in the U.S., where James Hardie generates more than 80% of its earnings, and will run the company's business operations, "to preserve business continuity," the company said in a statement to the Australian Stock Exchange.

Shafron's future role is under investigation, the statement said. It is planned that he will undertake a number of projects for the company in the U.S. and the Netherlands, outside the realm of the chief financial officer position, James Hardie said.

Company spokesman Chris Falvey wouldn't rule out action by the board relating to either executive before the ASIC investigation is completed.

"The board has made it pretty clear in relation to both their positions that they will be reviewed as matters surrounding Commissioner Jackson's report and the ASIC report become clearer," Falvey told Dow Jones Newswires.

Rob Patterson, who holds James Hardie shares in the portfolio he manages at Argo Investments, said Tuesday's statement from James Hardie was both necessary and conciliatory.

"Operationally Macdonald is going to run the U.S. business. Certainly from the MD role he is stepping aside, but operationally, it's probably a good thing that he's staying," said Patterson.

In James Hardie's statement, Hellicar said the company had the will and the capacity to address a key finding of the government report, which stressed the need to develop a means of sustainable long-term compensation for asbestos disease suffers.

"James Hardie acknowledges the moral obligations it has to legitimate claimants," Hellicar said.

The company will work with the Australian Council of Trade Unions, the main union body, to develop a solution that is in the interests of claimants, shareholders and all parties that rely on James Hardie for a living, she said.

The Jackson report gave tacit support to James Hardie's suggestion that a statutory fund be established to pay compensation but said it needed further clarification.

The company has provided little detail on the fund other than to say the principal savings from its introduction would be from a reduction in legal costs.

In an indication that the yet-to-commence talks between the union and the company will be anything but smooth, an ACTU spokesman told Dow Jones Newswires that it is "completely opposed" to a statutory fund.

"We believe they're profitable enough to pay for their responsibilities," the spokesman said.

Despite Jackson finding after a six-month inquiry into the company that James Hardie was only morally rather than legally liable to fully fund asbestos liabilities, pressure from the government, unions and victims groups has intensified in the past week.

Both major political parties have handed back political donations and governments have threatened to boycott James Hardie products.

Argo's Patterson said the executive changes were an interim measure while James Hardie sorts through the issues.

"I still think there's a lot of water to run under the bridge. They've got to sit down with the unions and work out a plan now to meet claims going forward," he said.

In a separate statement, Macdonald said Tuesday he would "vigorously defend" himself against allegations made in the Jackson report.

James Hardie shares lost more than a third of their value from a high of A$7.81 last October after evidence of a funding shortfall first emerged.

The shares have risen almost 5% in the past week. They closed up 7 cents, or 1.2%, at A$5.85 on Tuesday.

"This stock would have been A$8.00 if none of this had happened," Argo's Patterson said.

Of the 11 analysts surveyed by Thomson One Analytics, six have either a Hold or Neutral recommendation on the stock. Five of the analysts have either a Buy or Outperform recommendation.

UBS analyst Mark Ebbinghaus said it was too difficult to value James Hardie with so many issues resulting from the asbestos inquiry.

"There are too many unknown quantities," said Ebbinghaus, who has a Neutral view on the stock. He has a 12-month price target ex-asbestos of A$9.20 and has attached a notional A$3.00 value to the present value of asbestos liabilities.

Founded more than 100 years ago, James Hardie was Australia's largest manufacturer of asbestos.

It established a new parent company in the Netherlands in December 2001 in a move victims' groups and unions say was aimed at cutting its exposure to asbestos claims in Australia.