cer after capital

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Centro in search for capital to cut loan
Maurice Dunlevy From: The Australian November 17, 2009 12:00AM
AN over-leveraged Centro Retail Trust (CER) yesterday flagged a $3.75 billion capital transaction -- possibly through a float of property assets -- that would be part of a major restructure of the debt-laden Centro group.

CER's Melbourne annual general meeting was told falling valuations, particularly for Australian properties, had put loan-to-value covenants under pressure, forcing the trust, which lost $2.7bn in the past year, to consider all its possibilities.

Centro chief executive Glenn Rufrano said although the listed retail trust had not breached loan covenants, its current 77 per cent LVR (loan-to-value ratio) needed to be reduced to 25-35 per cent to bring it into line with other Australian property groups.

The Centro boss then dropped a bombshell by telling unitholders that CER, the listed spin-off of the Centro Properties Group, did not expect to reduce its debt to peer group levels without "a capital transaction".

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At a later press conference, both Mr Rufrano and new CER chairman Peter Day would not rule anything in or out as Centro embarks on a search for cheap capital.

Proposals are understood to include some form of a public float, most likely of Australian assets, a geographic segregation of Centro's Australian and US properties and various other portfolio combinations.

Private equity is also in the mix, although private equity firms would probably demand greater returns than Centro would be willing to pay, analysts said.

With $5.5bn of debt and $6.9bn of assets, Centro needs to raise around $3.7bn to reduce its current LVR to 25 per cent.

A 35 per cent LVR would require $3.3bn.

Centro has already sought advice from Australia's top investment bankers on a major restructure of the group.

Mr Rufrano said it was in the process of reviewing the advisers' credentials.

"We are at the start of this process, and I would like to emphasis that no transaction is imminent," he said.

Centro almost collapsed nearly two years ago after disclosing to the market that it could not refinance a multi-billion short-term debt facility.

Subsequent debts extensions have provided a lifeline for the group, which on Friday announced a $248.5 million extension.

CER said last week that it expected annual underlying profit to fall by 20 per cent in 2009-10 and net cashflow to be 15 per cent lower.

Centro said that economic factors, including movements in the Australian dollar and interest rates, had affected its September quarter results.

Centro head stock Centro Properties will hold its annual general meeting in Melbourne today