centro move to placate nervous banks...

Source: www.theaustralian.news.com.au

Centro move to placate nervous banks
John Durie | January 11, 2008

CENTRO chair Brian Healey has taken his company off the bourse to give him time to placate some increasingly nervous banks.

But, as things stand today, just whether this will be possible is still in doubt.

The trading halt is to sort out the banks and it seems more likely to be bad news, with an equity recapitalisation not on the immediate agenda.

Advisors to the fallen $8 billion property group had spruiked the concept of an equity recapitalisation along the lines of that being engaged by Merrill Lynch et al on Wall Street, with sovereign equity funds from Singapore to Abu Dhabi coming to the investment banks rescue.

The difference between Centro and, say, Rams Home Loans is the latter is a fundamentally good business which relied too much on short term funding from a market which disappeared overnight.

Centro has long been an accident waiting to happen - a complicated over leveraged vehicle which paid too much for dodgy assets.

To make matters worse, while most companies engage a few banks to syndicate big loans so everyone knows where they stand, Centro adopted the model of getting many banks to lend it just a bit with all sort of cross guarantees such that no-one quite knows who ranks ahead of whom.

That explains why the banks, led by JP Morgan, NAB, CBA and ANZ, hired insolvency firm McGrath Nichol to prepare a report on exactly who stands where.

The banks are nervous and some point to the quick unravelling of Pasminco back in 2001, when Ferrier Hogdson was hired to get a standstill agreement from the banks after the company had defaulted on some loans. When some banks refused the company went into liquidation.

Centro may not be quite at this point yet but the banks are in no mood to carry Centro’s Andrew Scott as the effects of the sub-prime crisis rolls out.

At least the Australian banks have some good news with The Wall Street Journal reporting Bank of America in talks to buy out Countrywide, the US mortgage provider to which most of the big Australian banks have credit facilities.


Ends.

Cheers, Pie