Rufrano's objectives TOPIC : Centro smashed by the credit crunch
Hi, I believe that the benefits of the restructure of Centro's debt has gone unnoticed.
My view is that the objectives of the lenders are to get their money back and hopefully participate in some upside. The objective of Glenn Rufrano is to increase the company's SP with minimal dilution to shareholders.
– The hybrid structure (with maximum dilution of 90.1 per cent) gives Rufrano and CNP every incentive to increase the SP and reduce debt. If CNP can increase the share price, then they can raise capital and pay out the note holders. Note holders get their money back with interest. If not, then lenders will own the company in seven years time and can handle an orderly sell of the assets (without going into administration unless the s/h do not agree to the conversion).
– The 14.9 per cent equity issue to the lenders for 'fees' had me baffled, but now I realise that the reason is to give lenders the chance to participate in the upside of Centro if the SP recovers (clever because it gets them on board and could be the negotiating tool to capitalise the interest).
– Current shareholders maintain control of the group (but with 14.9 per cent now held with lenders) without the bank running the show for at least seven years.
– Interest capitalisation and no dividends also gives more cash-flow back to CNP to reduce debt quicker and if the cycle turn and assets are revalued upwards and with an accelerated debt reduction plan, then all of a sudden, the business is looking extremely profitable.
So the combination of the above along with the long term extension of $4 billion debt by three years is a great outcome. Share dilution will not happen if CNP can get it right. And there are seven long years to do it and the right structure to do it. The alternative of a simple debt extension for the full lot will not cut it. Simply because there is no incentive for Centro to pay off the debt quickly and they will be at the same situation again in three years time.
Charles Wong 19 Dec 2008 10:41 AM
CNP Price at posting:
9.1¢ Sentiment: Hold Disclosure: Held
