the fundamentals, page-22

Event Analysis

Over two weeks ago, GMG announced that a ‘strategic partner’ had made a credit approved proposal to refinance around $460m of GMG’s imminently maturing syndicated bank debt.

GMG have now announced that Macquarie Bank has provided a $300m finance facility to GMG for nine months expiring in February 2010, being extendable for a further 15 months and at an undefined ‘market price’ and on undefined terms. In return for providing the facility, Macquarie Bank receives 414m options over GMG securities at an exercise price of 30cpu with a two year term. This represents a share issue of around 15% at a price just above the closing price of 28.5cpu which, if exercised, would provide GMG with around $125m capital.

Such a large options issue requires approval at a meeting of unitholders. Should unitholders not approve the issue, Macquarie Bank is entitled to a cash amount from GMG equivalent to the benefit foregone. Assuming that GMG only paid a modest up front refinancing fee to Macquarie Bank, if the cash equivalence payment has to be made it may still be far less than the rumoured $20-$30m up front refinancing fees allegedly being currently charged by some banks to AREITs.

The refinancing is $160m short of the amount originally announced, with GMG continuing to be in discussions with other ‘strategic investors’ who may participate on the same basis as Macquarie Bank.

The refinancing is not the silver bullet that the market was hoping for following the original announcement. It provides a short term reprieve for debt refinancing but does not address the longer term debt problem. The market was overwhelmingly underwhelmed by the refinancing with the price falling 17.5% to close at 23.5cpu. As the refinancing is at ‘market price’, we have not amended our valuation pending release of further terms and with considerable debt risk remaining in the stock. Our recommendation remains HIGH RISK BUY and GMG should only be considered by investors willing to bear high capital risk