afr rufrano goes for five card trick

Australian Financial Review

December 13-14, 2008

Report Nick Lenaghan

Glenn Rufrano never expected he'd be buying his daily coffee at a suburban mall in Melbourne when he sold the New Plan Excel Realty Trust to Centro Properties Group last year.

But since January this year, when he took over from Centro boss Andrew Scott, Mr Rufrano has nursed the ailing shopping centre giant through four life-or-death debt deadlines.

On Monday, when almost $6 billion of obligations fall due, Mr Rufrano is hoping the banks will respond one more time and give Centro a longer-lasting reprieve by swapping some of their debt for equity.

It was April 2007 that New York-based Mr Rufrano put together the deal to sell New Plan's 460-odd shopping centres to the Australian real estate investment trust for $6.3 billion.But that was the deal that became too big for Centro to swallow when the credit crunch brought its debt-driven expansion unstuck.

Centro's model relied on the headstock being able to push its acquistions, funded by short-term debt, down into its complex cluster of investor syndicates and funds.

In mid-December last year, Centro told the market it was struggling to refinance $2.7 billion in maturing debt, and just one month later Mr Rufrano was invited to give up Brooklyn for the mean streets of Glen Waverly.

Mr Rufrano's sales pitch to the lenders-which include Australian banks, US insurance companies holding corporate paper and US lenders-has been the same:

Centro is worth more to them as a going concern than it would be on auction block.

In the interim, Mr Rufrano has been working on a longer term restructure plan, asking the Australian Banks and the US note-
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CENTRO IS WORTH MORE AS A GOING CONCERN THAN IT WOULD BE ON THE AUCTION BLOCK.
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holders to exchange as much as $2 billion in debt for equity in the embattled retail landlord.

The US recession and the accompanying retail downturn there may have slightly blunted Mr Rufrano's message, which otherwise remains the same. The banks would do better to rely on earnings from strong occupancy in assets managed by an experienced hand than by tipping Centro's portfolio en masse onto an already depressed property market.

Mr Rufrano's pitch has been received well by most of the Australian syndicate, banking sources say. The major stumbling block to a longer-lasting deal appears to be getting the banks to agree on how their debt should be translated into equity.

Of the local lenders,

Commonwealth Bank of Australia, has the largest proportion of its debt-more than $1 billion-secured against Centro assets and it has been pushing hardest for the best deal.As the December 15 deadline looms, Mr Rufrano has to use his powers of persuasion one last time to cut a deal with Centro's potential new owners: the banks.