centro ultimatum..full article from afr, page-14

Hi all
Today's article on subject from Business Spectator

Centro prepares for the plunge
Stephen Bartholomeusz
Published 12:55 PM, 14 Nov 2011 Last update 12:55 PM, 14 Nov 2011

When Robert Tsenin said at the weekend that if the proposed reconstruction of the Centro property group were voted down next week it might be necessary to import receivers, he may have been exaggerating. Or maybe not.

There is no doubt that if the various security holders in Centro Properties and Centro Retail vote down the proposed aggregation of their groups tomorrow week that, as Tsenin told Alan Kohler on the ABC’s Inside Business program yesterday, chaos would be unleashed.


Centro Properties would probably be plunged into insolvency almost immediately and, with a $1.6 billion deficiency in net assets, would be in the hands of its secured lenders. No one else could expect to get a cent.

Centro Retail security holders wouldn’t be quite as immediately and destructively impacted, given that their entity has positive net assets of close to $1 billion.

However, given that Centro Properties owns a majority of its securities, is its responsible entity, provides its management and, with its funds, co-owns most of the properties in which Centro Retail has an interest, CER interest holders would be adversely impacted.

Moreover, CER’s lenders have put in place relatively short-term funding to enable the aggregation to proceed. That funding matures in the third quarter of next year. If the aggregation proposal were voted down it is quite conceivable that CER, too, would ultimately end up in the hands of its secured lenders.

Between the two extreme outcomes that could occur next week – approval at both levels for the proposal or rejection at both levels – there is a third possibility. It is possible that CER security holders approve the proposal but CNP’s stakeholders vote it down.

That’s not necessarily a disaster for the scheme. CNP would be in voluntary administration, its secured lenders would be in the driver’s seat and they could push ahead with the aggregation.

While it might appear obvious that the proposal – which provides $100 million to be shared by CNP’s security holders, its hybrids and its class action litigants – is better than an alternative in which they would get nothing, there is no certainty that CNP’s stakeholders will approve the aggregation. Nor is it certain that CER’s security holders will endorse it.

In CNP there are holders of hybrids that are trying to use their ability to jeopardise the deal as leverage for something better. In CER there are a number of US hedge funds that think the scheme is too generous to CNP.

To some extent this was predictable and predicted. In every complex reconstruction opportunistic players converge and try to use their ability to threaten the outcome to get a better deal. There’s inevitably a game of brinkmanship to be played out by the hedge funds and those trying to implement the proposal.

Having spent the best part of a year on the aggregation, having analysed exhaustively their options, having come up with a scheme which at its core is based on net asset values and the share of them attributable to the various interest parties, and with only a week to go before the votes, it is unlikely that the directors of the two Centro entities are going to blink at the eleventh hour.

They do have their own leverage. If the proposal is voted down, chaos will prevail and whether or not Centro Retail follows CNP quickly into administration it will be caught up in one of the largest, messiest, most complex and protracted insolvencies ever experienced in this market.

The co-mingling of ownership and management of the underlying assets would create a nightmare for administrators and CER directors and have major and unpleasant implications for the Australian retail property sector generally.

It is inconceivable that they could produce a better value outcome for anyone than the creation of a new, conventional A-REIT, conventionally-geared and owning $4.4 billion of high-quality Australian retail property centre assets with development upside.

Tuesday week, CER security holders will vote first. If they approve the aggregation there will still be some prospect of it proceeding regardless of what happens at the CNP meeting.

If they vote it down, regardless of whether it creates a need to import insolvency practitioners or not, Tsenin is right. The biggest winners will be receivers and lawyers and there will be "vast destruction" of value for everyone else.