centros promising start...

Source: www.theage.com.au/business

Centro's promising start
Malcolm Maiden
July 15, 2008 - 1:16PM

Centro's $US714 million sale of the bulk of its US shopping centres is a drop in the bucket of debt the group owes, but promising nevertheless.

Centro won't see all the cash, because some of it will go to pay off debt secured directly against the US shopping centres, and because Centro does not own 100% of the properties: it has a 47% stake in the fund that is selling the shopping Centres, Centro America Fund (CAF), and its 50% owned Direct Property Fund International owns another 48%.

Net proceeds will be $340 million after payment of the secured debt, and Centro will receive about $290 million of that, and use it to pay down its own debt.

All up, Centro's banks and US noteholders are owed about $3.6 billion, so there is still a long way to go.

But it's a start. After it got into trouble when the credit crisis bloomed in August last year, Centro's first plan was to sell down slabs of equity in its two big asset portfolios _ CAF and the Centro Australia Wholesale Fund (CAWF).

There were potential buyers, but as the markets dived again in the first months of 2008, their sources of debt financing dried up: deals of the magnitude Centro was proposing were simply too large to contemplate.

Plan B was to break the sales down into more manageable pieces, and today's sale of 29 of the 31 properties in CAF is the first sign that it is working.

The sale has been struck at a 10% discount to book value, but that is a reasonable outcome given the US property market slump and the economic downturn it is producing.

Centro will also continue to book an income stream from the management of the properties for at least a year, and, given that it is in place and knows the properties, potentially longer.

The next sign from Centro could be a major sale out of the CAWF Australian shopping centre portfolio. Bids are in for the sale of four of Centro's Australian centres: Centro Bankstown in Sydney, Centro Galleria and Centro Halls Head in Western Australia, and Centro Colonnades in Adelaide.

The headline price could approach $1 billion, and the amount available for further Centro debt reduction after the payment of debt tied to the properties could be around $500 million.

In a market that is wobbling again on renewed fears the credit crisis is unhinging America's banking system, Centro's sale is a small but important victory.

It is also testament to the patience of banks with exposure to stressed Australian groups including Centro, Babcock & Brown and Allco.

In a generally gloomy market here today Allco provided more evidence of the willingness of banks to work with companies to solve their problems, by announcing that it has finally renegotiated its head company debt facility.


Ends.

Cheers, Pie :)