centro directors face ire..., page-34

Selmax,

I have read your predicament and that too of others such as Buffet.

I have also run my eye over the financials of the company and as you already know what is killing this company is its gearing; Loan to Value Ratio (LVR) and the by-product of that gearing is Debt Coverage and Capacity to Service Debt.

I have looked at also some others saying that it is best to liquidate the company and pay out from residual.

Having looked at the P&L there were some massive spending in 2007 on day-to-day things (it looks as though the Board lost control of spending) and from what I can see there has been a significant amount of wasted money, so this lavish board is highly likely going to spend all the money before there's anything left.

So, the only possible ways out that I can see are:

1. Realisation of Assets to Lower debt (this has the same outcome as if selling the company) - if you and I did it we would pay minimal fees and charges to get it done but looking at the financial reports, the Board will not liquidate assets cheaply. Nonetheless the Business does have to be downsized to the point where the LVR's against the properties (not Intangibles and other weak assets) is 60% or less.

2. Obviously gaining better Interest Only or Long Period Principal and Interest terms from the financiers (this may be possible if caveated for sell down of specific assets to LVR targets).

3. INFLATION - this could be your saviour. If I am thinking straight, Bernake's primary goal is to beat deflation and hence the opposite effect is to create inflation. If this is achieved by lowering interest rates, increasing money supply and getting borrowing, then the debt outstanding will have a lesser worth than it currently is and the properties will appreciate in value... if you like, inflation acts as a natural engine to bettering LVR.

4. The other thing that would assist if it was to fall in your favour is the AUD for obvious reasons.

So... it is not pretty right now, and if I was a shareholder, if I did not see a decrease in Board and a sell down of assets in the short term, I would expect that my 6c will over time evaporate.

You need a small agile Board to rip apart the assets and lend each on its own merits and segregate the risk against class and financier.

The business has some fantastic assets which have appreciated well but the management of this firm has divested all this appreciation into cash for itself or distributions, instead of retiring debt and keeping gearing under control.

To cry that the markets did it to us is just weak... this is poor capital management.