city pacific peers into the abyss

No need to respond to your self-reassuring emails. The share price is doing the talking. Its all one way traffic. Have fun.

See article from the Age, just out:



City Pacific peers into the abyss

Just a few weeks ago, property developer City Pacific was mooting a $1.3 billion takeover of MFS - naturally this was $1.3 billion worth of share certificates rather than cash.

But this week, it declined to put a cash instalment of $5 million on the table to buy the MFS Premium Income Fund (PIF).

City Pacific is a high-risk proposition and needs to either do a deal or raise some money urgently.

BusinessDay understands that City's offer for PIF was shunned by MFS and its advisors from insolvency firm Korda Mentha.

Ironically, with MFS anticipating the private equity mob CVC to stump up $409 million for its 65 per cent stake in leisure group, Stella, MFS has access to more cash than City Pacific.

With the $1.3 billion scrip proposal dead, City chairman Phil Sullivan had gone back to MFS with an indicative offer for PIF in the order of $60 million. The idea was City would pay $5 million or so upfront then further instalments depending on the performance of the PIF loan portfolio.

PIF had raised $770 million when it floated and lent the funds to property developers.

Redemptions to the fund are frozen while MFS works through its solvency nightmare but PIF loans tipped in $16 million last year and there is some $3 million cash left in the tin.

City had its eye not only on the PIF assets but also on the fund's 11,000 investors which could have delivered Sullivan and Co. a new distribution platform to raise some more money.

After the usual argy-bargy in an exclusive negotiation period, MFS is understood to have told its suitor it might deal on the original offer of $5 million or so upfront for a staggered total of $60 million.

City, however, resiled from its original pitch and, instead, offered to pay MFS in City Pacific shares. MFS however deemed the approach not good enough for PIF even though MFS and PIF are suspended and desperate to sell assets to get their its own obligations down.

It's not a good look for City which recently revealed it had deconsolidated two mortgage funds from its accounts. City has more than $1 billion in retail investors funds which it on-lends to property developers, including itself.

There is cash in the funds but the parent, City Pacific, is down to $2.7 million cash as at December. Although it declared a net profit of $27.5 million for the December half, it was $20 million cash-flow negative on operations and showed $102.5 million in debts due this year in its balance sheet statement under current liabilities.

In the notes to the accounts, City revealed it had deconsolidated two mortgage funds, the City Pacific First Mortgage Fund and the City Pacific Income Fund which meant the parent would ``no longer provide the funds with financial support in the event of a loss so as to maintain unitholder distribution rates''.

Things are not pretty.