australian banks refuse to roll over debt...

Source: www.theaustralian.news.com.au

Australian banks refuse to roll over debt
MARTIN COLLINS: John Durie | November 04, 2008

SIGNS are emerging that banks are reaching the point of no return, by refusing to roll over debt for fallen angels like Allco and Centro.

Allco may yet win a reprieve but the fact it went into a trading halt yesterday at least confirms some banks are baulking, because the company deadline expired on Sunday night.

Liquidators tell you it helps everyone if banks and companies can work through the issues themselves without putting companies under.

But at some point fatigue hits -- those working at the company can't see any hope of selling an asset at anywhere near fair value.

Banks also lose patience and realise the asset on the company's books at $1 billion may well only fetch $500 million today in a fire sale, but that's a lot better than $200 million next year.

In the property space, offshore lenders are using any chance possible to get their money back.

Most corporate debt deals come with change-of-control provisions, so if, say, Rio is taken over by BHP, its bankers could demand immediate repayment of the $US40 billion in debt.

In this case, the standard clause most likely would not be triggered, but if you are a foreign bank now owned by the British Government, you are probably being told not to lend any more money to the Australian property sector.

So, if a property trust is taken over, it's the perfect chance to get your debt back.

Centro runs the bank gauntlet next month and the odds of this being the end of the line for the company are shortening by the day.

The emergence of ANZ as an adviser to Tony O'Reilly's sale of his stake in APN raised some eyes, because the bank doesn't rate as one of the top M&A houses in town.

Goldman will be the lead banker but ANZ it seems pitched for the job using its credentials as a big lender to O'Reilly and APN and the clients obliged.

The bank is said not to have blown the whistle on O'Reilly.

The list of potential buyers is not huge, given that much of the media sector is either conflicted or suffering its own debt problems.

Lachlan Murdoch has talked to APN before and Kerry Stokes has the money.

Suffice it to say, there is a circuit of minority stakes in Australian media companies at the moment that makes the O'Reilly stake difficult to sell. Different people are interested in different APN assets so, short of a consortium bid, the deal looks complex.

Given the fragile state of the markets, the ASX moved with extraordinary haste in removing Allco's Record Realty from the bourse for its seeming failure to provide a list of its top 20 shareholders.

The company has debt of $1.9 billion and, at last count, assets worth $1.8 billion and falling, so its days may be numbered in any case.

Ironically, one of its prime properties in Sydney headquarters the ASX.

Allco's fate still hangs in the balance, but the fact that talks are continuing says hope remains.

While most lawyers are still coming to grips with last week's Bell Group judgment by Justice Owen, its timing was superb, just to add a little more caution to boards of directors.

The case, dating back to the 1987 share market crash, arguably raised the bar for directors in terms of signing off on new debt deals while the company teeters on insolvency.

The banks in the case, while losing some points and being potentially forced to pay some money back, of course would be first in line to get the money from the liquidator.


Ends.

Cheers, Pie :)