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May 17, 2008

JAMES Packer could emerge with a controlling stake in a distressed satellite of the empire once controlled by property group MFS, as the nation's second-richest man attempts to stitch together an Asia-Pacific portfolio of entertainment and leisure assets.

Publicly listed Living and Leisure Australia Group announced a multi-staged rescue package yesterday that would include the restructure of $70 million in debt, a change of its operational structure and a rights issue to raise as much as $90 million for its balance sheet.

Leading the rescue is the Hong Kong-based Arctic Capital, a subsidiary of Mr Packer's private company, Consolidated Press Holdings.

Long-time Packer family operative and Arctic Capital boss Craig Carracher said the business could end up with a 20-30% stake in LLA depending on how shareholders reacted to the rights issue. But that stake could leap past 50% if other shareholders refused to take up all their rights.

LLA, formerly called MFS Living and Leisure, owns Victorian ski fields, Melbourne Aquarium, a tree-top walkway and aquariums in Asia. It was controlled by MFS, now called Octaviar, which is itself drowning in debt.

Under the refinancing deal, Arctic will acquire LLA's $63 million debt facility from the Octaviar Premium Income Fund and buy the responsible entity to the company.

It will also underwrite a renounceable rights issue to raise up to $90 million, with shares expected to be priced at about 7.5¢ each. LLA shares have been suspended since January when they crashed to 36¢.

Mr Carracher said disentangling LLA from the old Octaviar empire was a crucial part of the company's revitalisation.

He said Octaviar represented something of an albatross around the neck of LLA, preventing it moving forward. He said Mr Packer was keen on LLA's entertainment and leisure assets.

"We've set up (Arctic) in Hong Kong for James, his private equity funds management business to ride the Chinese story, ride the Asian growth story.

"We see (in LLA) a very well-run batch of assets … it's not distressed at the operational level, only distressed at the parent company level".

LLA is now in talks with the ASX for its shares to resume trading.