cats holders overcompensated by 8c nta

Hi All,

Below is my latest correspondence with representatives of CRF:

It is quite clear that even if $85M is calculated as the correct compensation payable to CNP secured holders, the fact that it was paid by shares instead of cash has cost us 8c NTA.

Please see below

ANy thoughts?

Cheers
_____________________________________________

Thanks very much for your email.


I greatly appreciate the response and the great effort you and the team are putting in but there are a number of keys issues I have raised that have not been addressed.


Your response addressed one issue, however there is one major issue which I would appreciate clarification on.


The CATS issued to the former CNP secured creditors I believe has an excessive dilution impact of the NTA of CRF securities.


The announcement in relation to the settlement of the class action states that


“If the settlement announced today is approved by the Federal Court, this will trigger an

obligation for CRF to issue additional CRF stapled securities (for nil consideration) or make

a cash payment to CATS holders. The Board has determined to satisfy this obligation by

issuing additional CRF stapled securities”


Therefore, you had the option of making a cash payment in light of the above.


I also understand the following clause in a supplementary disclosure statement announcement as follows:


"Settlement of CATS in cash

If Centro Retail Australia uses or proposes to use any cash (or cash equivalent) in

lieu of issuing New Stapled Securities to settle the CATS without first obtaining the

consent of at least two-thirds of the lenders."



http://imagesignal.comsec.com.au/docserver/01237862.pdf?fileid=01237862&datedir=20111104&edt=MjAxMi0wNi0wNisxNDoxNDo1MSsxMjArMCtjb21zZWMrcmVkaXJlY3QrL2ltYWdlc2lnbmFsL2Vycm9ycGFnZXMvUERGVGltZW91dC5odG1sKy9pbWFnZXNpZ25hbC9lcnJvcnBhZ2VzL3BkZmRlbGF5ZWQuanNw


However, that same announcement also highlights that only $50M needs to be amortised for the period ending December 2012 in order to avoid default.


Given, CRF recently unlocked capital with a half sale in its three largest assets above book value, which has reduced gearing, improved NTA and is also EPS accretive given the cost of debt is higher than the net yield, I don’t see how it could be an issue paying the secured creditors with cash.


The following is my calculation of how the CRF NTA would unfold had the cash option been exercised,


Total payout to be incurred by CRF is $85M

There was a provision of approximately $65M as at 31 Dec 11 for CATS liability (approx 5c per share, 1.3b shares on issue)

NTA 31/12/11: $2.35

If we add back the provision, we get about $2.40 ($2.35 + 5c).

Class action liability is $85M, which means 6.5c per share payout. NTA is now approximately $2.335

If we had paid cash to CNP secured creditors instead of issuing shares, NTA would reduce by another 6.5c ($85M) to $2.27.


However, the issue of CATS has diluted the NTA by an additional 8c.


Please explain how the issue of CATS is in the best interests of all CRF holders in light of my above comments.


A cash payment of $85M would satisfy the secured creditors’ claims and have a less dilutionary impact on CRF’s NTA.


As already mentioned, I am a passionate CRF holder who is very optimistic about our prospects who only wants the best equitable outcome for all stakeholders.


Please do not hesitate to contact me if you have any queries.