CENTRO Properties Group is teetering on collapse, with its stock price down 73 per cent this morning after flagging massive asset sales and suspending its dividends pending a review of its finances and debt facilities to be completed by the middle of February. The $26 billion group looms as the biggest Australian casualty of the collapse of the US sub-prime crisis.
Chief executive Andrew Scott told The Australian at a press conference this morning that �the board considers the organisation is still solvent and that remains at least until completion of the February review.�
But clearly that depends on continuing negotiations with its bankers given total debt stands at some $13.8 billion, compared with debt on its balance sheet of $2.9 billion.
Centro’s financial problems have cast a pall over the entire listed property sector even though it has long been regarded as a potential house of cards, given it has borrowed heavily to finance a rapid expansion in the US where it has acquired relatively low value assets.
Somewhat extraordinarily the company said in its statement this morning that “we never expected nor could reasonably anticipate that the sources of funding that have historically been available to us and many other companies would be shut for business.�
The sub-prime crisis hit global stock markets in July.
So far this year the market value of the main Centro stock has fallen from a high of $8.5 billion in May to $4.8 billion when its stock was suspended on Thursday and to as low as $1.5 billion this morning.
The company has 65 per cent of its assets in the United States, which itself is on the brink of a recession with the collapse of the short term debt market bringing property values down sharply and potentially hitting consumer demand.
Scott told analysts the board has revised its gearing targets down from 50 per cent of loan values to 40 per cent and increased the required interest cover from 2.2 times to 2.25 times.
While debt terms have been extended to February 15, somewhat disturbingly the company said it is still negotiating terms.
The company has already cut earnings forecasts this year by 14 per cent to 40.6 cents per security, which is just higher than the 39.8 cents per security reported last financial year and down from the 47 cents forecast for this year.
Scott refused to give details of longer term forecasts, which are clearly subject to ongoing talks with its bankers and already these talks have resulted in a one-off cost of $40 million.
The company said its underlying property was still performing well, but it has forecast potentially mass asset sales and possible equity injections.
Two of its funds have also closed its doors to redemptions.
CNP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
