article: bale out of centro now, broker says

Bale out of Centro now, broker says

Courtesy of AFR

Nick Lenaghan


Embattled shopping centre owner Centro Properties Group is headed for a break-up, with its bankers unable to agree to a collective rollover of almost $6 billion in debt maturing next week, according to Goldman Sachs JB Were.
The broker has sounded a warning to its clients to bale out now and get whatever equity they can ahead of the December 15 deadline.
A reprieve for Centro depends on three groups of lenders - US banks, Australian-based banks and a group of US insurance companies holding notes - all agreeing to a complex debt-for-equity swap.
But GSJBW analysts Simon Wheatley and David Lloyd note that offshore banks are increasingly pulling out of debt rollovers for their Australian borrowers.
As well, it has become harder for Centro to show the banks it has "an executable plan to extricate itself from the current position in the foressable future", the analysts said.
"With such a wide group of lenders to Centro, and continuing strain in the credit environment, it seems increasingly likely that the lenders will not all agree to continue to fund Centro."
As the deadline looms speculation has increased that Commonwealth Bank of Australia, which has the largest secured facility to Centro among the Australian syndicate, is proving the most reluctant.
Centro itself has acknowledged its hybrid proposal - which could hand the Australian banks 80% control - would significantly dilute current shareholders' investments.
And even if the debt restructure goes ahead, the damage already done to Centro's brand was irreparable and the ability of both the headstock and listed spin-off Centro Retail Trust to trade out of their difficulties was "highly unlikely", the GSJBW team said.
"This leaves a break-up as the only likely viable outcome and out bearish view on real estate asset values does not bode well.
"We believe that remaining investors should liquidate their limited remaining holdings rather than risk a protracted wind-up."