From recent GSjbwere report"Capital Liquidity: Our base case...

From recent GSjbwere report

"Capital Liquidity: Our base case scenario suggests GMG will have:
• ~$586.8m of surplus capital at 30 Jun 2009. This falls to (i) $122.1m if NONE of the May 2009 debt expiry was refinanced.
• ~$332.3m of surplus liquidity at the end of FY10. We estimate that if $0 FY10 debt expiry is refinanced, GMG would have to cut its 2H09/1H10 dividend payout ratio to 20% to retain positive liquidity.

EPS Outlook: Using our FY10 EPS estimate of 12.0¢ as a base case (which assumes no development-related revenue), we examine GMG's EPS sensitivity to (1) occupancy levels and (2) declining FUM.

• We estimate that (1) a 1% drop in occupancy results in a ~0.25c decline in EPS and (2) a 5% decline in AUM reduces EPS by ~0.1c.

We further stress test EPS under the scenario that GMG does not receive 100% its FY10 distribution entitlement from cornerstone investments.

• We estimate that a 10% drop in cornerstone dividends results in a ~0.7c decline in EPS.

Gearing: We estimate GMG's headline gearing increases to ~52% after allowing for the write-down of (1) intangible assets of ~$1.3bn, and (2)~$640m decline in asset value assuming a portfolio WAV cap rate of 8.5%.

A headline breach would occur if group cap rates softened to ~9.5%.

While we believe GMG has been oversold, and on fundamentals GMG is looking inexpensive, the key variables that our analysis cannot adequately assess are (1) the banks' willingness to refinance debt or (2) whether they will allow further draw-downs on existing facilities.