centros guillotine to drop

From todays Telegraph.

Centro's guillotine to drop.

January 05, 2008 12:00am

THE bad news continues for Centro Properties Group, with the admission its earnings will be hit for six if interest rates rise or fall dramatically.

Australia's second largest shopping centre operator said yesterday it had been unable to extend maturing interest rate hedges on its borrowings.

The failure would translate into severe volatility in Centro's earnings and cash-flow if interest rates fluctuate.

For the second straight week, the news was cheekily delivered to the market mere minutes before yesterday's close, giving investors no time to react. Centro closed almost 15 per cent higher yesterday, up 16.5c to $1.285.

Analysts predict many who have been wooed back to the stock, thanks largely to rumours that foreign and local buyers are circling, could bail on Monday morning, sending shares plummeting once again.

"We were a little bit surprised, more bad news on a Friday afternoon," an analyst who declined to be identified said.

"I would think there would be (a large sell-off) on Monday. We have a sell rating on it."

Shares in Centro, whose 810 retail properties include shopping centres in Penrith, Bankstown and Warriewood, crashed more than 85 per cent in December when it became a victim of the US-sparked credit crunch.

It said it had failed to refinance $3.9 billion of its long-term debt and had till February 15 to do so or face possible insolvency.

Centro's shares were sitting pretty at $10.06 in early May, but sank as low as 42c at the height of its market capitulation on December 18. A market rally this year has seen 27 per cent added to its value.

Because of the failure to secure hedging, the Melbourne-based company's current interest rate hedging is now below historical levels, the company said.

It said the fixed rate portion of its Australian dollar interest rate exposure was currently about 50 per cent.

The weighted average of Centro's Australian dollar fixed interest rates, currently at 5.63 per cent and representing 50 per cent of its hedge, remained within policy at about 6.2 years.

The group also has around 40 per cent of its interest rate hedge exposure to the US dollar.

Meanwhile UBS Nominees, left red-faced after buying up to 49 million Centro shares only weeks before it collapsed, told the market yesterday it had sold down its stake by almost 3 per cent after a $200 million loss.

http://www.news.com.au/dailytelegraph/story/0,22049,23007808-5014099,00.html