Interesting article re city pacific online at SMH online
There is no value IMO for shareholders in this City Pacific transaction.
Under constitution you need greater than either 5 or 10% of shareholders to call EGM so I assume Scott with a few others could do this and move to shake up board.
Anyway I think below is reasonably accurate
MFS and City Pacific's survival game
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City Pacific about to begin due diligence on MFS
AdvertisementMichael West
February 14, 2008 - 12:58PM
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These are desperate times.
First MFS was going to buy City Pacific. That was in August last year. Then it was City Pacific buying MFS. Then MFS collapsed a few weeks ago and the deal was off, but now it's back on.
What's going on?
The game is called "let's try to survive by doing another deal''.
And timing would appear to be almost as critical to City Pacific as it indubitably is to MFS. One of its mortgage funds has $326 million of loans falling due from property developers by March 31 - that's six weeks. A further $707 million is due before December 31.
The City Pacific model works this way: the company runs a swag of trusts which it markets to small investors - give us your savings and we'll give you an 8 per cent-like return. "It's property, it's safe''.
Then it onlends these funds to both its own property development arm and to outside property developers too - taking its cut along the way.
Problem is, interest rates are rising and property developers are a little more stretched then they were last year.
And last year City Pacific had almost $100 million in loans ``past due'' at June balance date - in other words: in technical default.
City Pacific burned also $48.8 million in cash last year. In 2006 it had generated $82.5 million income but burned $48.8 million, which amounts to a $130 million downturn.
To be fair, property development is a game of lumpy income and City Pacific may be just about to sell large chunks of its asset base to arrest the cashflow deficits and pay down debt. Though this would countervail all market intelligence.
That second mortgages and receiveables are on the rise in the City accounts and $89 million of its loans carry an interest rate of 21.55 per cent average suggests management must do a corporate high-wire act to survive.
Hence the MFS deal. An acquisition of MFS assets would provide City boss Phil Sullivan and his troops with the perfect opportunity to have a lightning capital raising and drag some equity in the door.
As for MFS, corporate doctors Korda Mentha will no doubt be hawking its assets to the highest bidder.
The funny side of this MFS debacle - in reality a tragedy for small investors which relied on the advice of financial planners fed-large on trailing fees - is that City Pacific only made an offer to MFS a few weeks ago pitched at $1.33 billion.
Not that City Pacific has $1.33 billion to play with but the offer was conditional and it was using a less valuable commodity than cash - its shares.
Unlike its proteges Babcock & Brown and Macquarie Group, MFS is plagued by a rash of guarantees to its associates and assorted entities.
The parent company is liable to fund its foundering trusts and associates whereas the other financial engineers were smart enough and financially powerful enough to have done their deals and spun off their subsidiaries with little recourse.
As for Allco, the appointment of Ferrier Hodgson is finally proof of just how desperate its situation is.
Like MFS it has tried in vain to slap together a deal to make it look like business as usual.
Alas for Allco founder David Coe and his colleagues the era of the financial engineer has drawn to a close - especially now that the rump of the financial press has finally worked out the gig and no longer spruiks the structured wares so ardently.
The empires of leverage are unravelling faster than the rapid retinue of leveraged, byzantine deals which put them together in the first place.
MFS
mfs limited
