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Centro loaned $44m to company execsFont Size: Decrease Increase Print Page: Print Anthony Klan | December 19, 2007
THE most senior executives at Centro Properties Group - which is facing collapse after suffering a $6 billion meltdown this week - were given 10-year interest-free loans by the company to buy $44 million worth of shares.

However, seven of the company's top executives, including Centro's chief executive, Andrew Scott, chief operating officer, Graham Terry, and chief financial officer, Romano Nenna, may never have to pay the money back because of a legal clause in the generous share agreements that says the money does not need to be repaid if the share price collapses.

In the months leading up to this week's Centro share plummet, the company's most senior executives almost doubled the value of their interest-free loans from atotal of $23.5 million to $44.1million.

While Mr Scott's losses on paper over the past two days were $34 million, about $7million of that was borrowed from shareholders and will never have to be repaid if the group collapses.

The listed Centro Properties Group and satellite Centro Retail Group on Monday announced they had been unable to secure bank loans for $3.9 billion in debt amid the US credit crisis.

The companies, Australia's second-largest owners and operators of shopping centres, have until mid-February to source alternative funding or face a firesale of assets and potential liquidation.

Mr Scott has borrowed most heavily from Centro to buy shares, and held $10.479 million in interest-free loans from the company by June. A year earlier, his loans had totalled $5.912million.

Australian Shareholders Association president Stephen Matthews said yesterday that the $44million in interest-free loans to the key executives was heavily detailed in the group's annual report.

However, the term "non-recourse loan" in the report's wording meant the loans had to be repaid only to the value of the company's shares.

"If the share price is lower than the loan, then the company is left holding the bag and there's a double-whammy on the loan for shareholders," Mr Matthews said.

"We have railed against this for years, and it's one of the reasons the ASA is so opposed to company's making loans to executives, particularly non-recourse loans."

He said the use of "non-recourse" loans was widespread among listed property groups, because it delivered more tax-effective payments to executives.

Centro's Mr Scott was unavailable for comment yesterday afternoon. Yesterday morning, he said the 20,000 investors in Centro's unlisted funds were not expected to lose any capital.

"The underlying properties are operating very well," Mr Scott said. "Therefore, we expect and have every confidence the syndicates will continue to pay their distributions as they have done very successfully for the last 10 to 15 years."

Investors in Centro's listed companies are not so lucky. Centro Properties Group shares, which opened at $5.70 on Monday morning, hit a low of 42c yesterday. Centro Properties Group and Centro Retial Group have been the subject of allegations they had failed to properly disclose the risk of their funding facilities in recent months.

In an analyst's report yesterday, Credit Suisse described the disclosure of debt associated with Centro Retail Group as "opaque" and said "a large swath of debt had no disclosure atall".

Hedge funds came out in force yesterday afternoon to buy up Centro stock, almost doubling the value of Centro Properties from a low of 42c in early trading to a close of 80.5c, down 55c on the day overall. Centro Retail shares enjoyed a similar revival closing at 65c (off 20c on the day) after dipping to 50.5c in early trading