Just the man to scrub the books cleanElizabeth Knight May 8, 2009 Fresh management blood at the helm of the financially damaged property group GPT has wasted no time in wading into the balance sheet mess and announcing an equity issue of as much as $1.7 billion to keep baying banks from the door.
The reason for the choice of GPT's new chief executive, Michael Cameron, is now abundantly clear. As a former chief finance officer of both the Commonwealth Bank and St George, this man knows better than anyone how to deal with a company with liquidity problems and debt concerns that have taken it dangerously close to breaching its lending covenants.
Cameron knows exactly the point at which companies - while technically solvent - can find themselves at the mercy of bankers who are calling the shots.
There were a number of sceptics concerning Cameron's appointment because he had little history in property.
But the job is one that requires the expertise of a banker rather than that of a property investor. As such this fix-it man is right for the times.
Whether he proves himself over the longer term we will find out in the fullness of time.
Cameron is also the perfectly pitched personality for the once conservative real estate investment trust.
GPT went off the rails four years ago when it decided to move into a joint venture with the then aggressive up-and-coming finance group Babcock & Brown.
It had cut its age-old ties with Lend Lease and was looking to shrug off its staid and solid, reliable but somewhat dowdy investment image.
It plunged into Eastern European residential apartments, using its balance sheet and Babcock & Brown's apparent management expertise.
A large part of Cameron's balance-sheet cleansing is due to this foray. Much of this investment has already been written off and the remaining $1.2 billion of value remains under a cloud.
Cameron said yesterday that the money raised would also give GPT some options in how to deal with the B&B joint venture.
There are other asset write-downs and additional non-core assets to be sold - it is just that the B&B joint venture is a stand-out mistake that would have ended in tears whether or not we were experiencing a global financial meltdown.
But more than anything else, the capital-raising will give GPT some control over its destiny and some breathing space. Assets will be sold but they should not have to be sold at fire-sale prices. However, this reprieve has come at a price.
Only six months ago the company raised $1.6 billion in the hope that this would tide it over until the financial storm passed. But it was not enough. Investors will have stumped up as much as $3.3 billion over six months to put GPT on a secure footing and rectify the mistakes of the past.
After the issue, the company will be able to boast gearing of about 25 per cent, a cheaper cost of funds, and when better times return it can resume trading as that boring conservative property company that it used to be, with quality assets and reliable returns.
Meanwhile, the issue has managed to shine the spotlight on one of its competitors, Stockland. A cheeky Stockland had a takeover tilt at GPT some years back. It was unsuccessful but its legacy was a 12.7 per cent shareholding - one that has now been horribly devalued.
Stockland has not made mistakes of the magnitude of GPT's but it is not guilt-free. It is still feeling the pain of the global economic crisis. It is high on investment bankers' lists of companies in need of an equity issue.
It is considered unlikely to have enough spare change to retain its stake and will be diluted. This is a position that has resulted in plenty of smirks over at GPT.
Checkmate.
- In yesterday's column Bell Group was inadvertently referred to as Bell Securities. Apologies to all concerned.
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GPT Price at posting:
41.2¢ Sentiment: Buy Disclosure: Not Held
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