article in australian

Centro shares fall as US sale terminated

Maurice Dunley | September 16, 2008

CENTRO'S $US714 million ($880 million) US shopping centre sale has fallen over in a setback described by analysts as pushing the group even closer to administration.

In one of its darkest days since the troubled shopping centre owner and manager revealed a $3.9 billion funding shortfall in December, Centro's battered shares fell to record lows yesterday as investors baled out.

Centro's head stock dropped 31.4 per cent to 7.2c, while its retail trust fared little better, with a 31 per cent fall.

The timing could not have been worse for Centro, which by the end of this month must satisfy Australian lenders and US noteholders that it can implement a rescue plan before another December 15 deadline, when it is due to repay $450 million.

Centro chief executive Glenn Rufrano put his best foot forward yesterday with new plans to break up the 29-property Centro America Fund portfolio and re-offer it for sale in two or three lots.

But there was no hiding Mr Rufrano's bitter disappointment that the sale to an undisclosed US pension fund -- brokered through an adviser -- did not go ahead.

He had, however, flagged that possibility on Friday, only hours before negotiations on a highly conditional purchase contract signed in July abruptly ended.

The silver lining for Centro, however, has been the backing it received from the banks to reject Friday's bargain basement purchase offer, which was reportedly well below the original $US714 million contract price.

That bodes well for Centro's chances of clearing the September 30 hurdle, although Mr Rufrano said he did not think the failed US sale would have any effect on that deadline.

In its statement to the Australian Securities Exchange, Centro said discussions with the previously contracted buyer continued.

But Centro is determined to maintain the upper hand and, with the support of its lenders, will be able to approach other buyers in a sale process that should take two to three months to finalise.

The previous price of $US774 million represented only a 10 per cent discount to book values, but with US financial and property markets going from bad to worse, the sale price will be lower.

Centro would not reveal the final pension fund offer but, according to analysts, the discount could have been 20 per cent or more.

Centro has been under similar pressure to drop the asking prices of its Australian shopping centres, but has so far held the line. The group has reportedly encountered problems finding buyers for big-ticket items, among them the $600 million Centro Bankstown centre, which was recently withdrawn from official sale.

However, a round of sales of properties under $75 million is likely in weeks. The Southport Centre on the Gold Coast is expected to be among the first of these properties.

Centro Properties Group closed at 7.2c, down 3.3c, while Centro Retail Group closed at 10c, down 4.5c.