Analysts expect Centro extension As vital to the system as AIG.
As vital to the system as AIG. Photo: Louie Douvis
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* Natalie Craig and Eli Greenblat * September 18, 2008 *
SHOPPING centre owner Centro, like the government bailed out American insurance giant AIG, is almost too big to be allowed to fail, despite its ongoing inability to pay down maturing debt.
Analysts say that the collapse of a crucial deal to sell American shopping centre assets is unlikely to extinguish its chances of an extension on $1.2 billion in loans to US noteholders maturing on September 30.
They say the last thing Centro's financiers want is to become owners of shopping centres via a complicated web of syndicates and funds. Especially when those shopping centres, both here and in the US, are proving hard to sell.
Talk among the insolvency industry is that tens of millions of dollars in fees would be ripped out of a Centro collapse, making its decaying corpse the biggest game in town for corporate undertakers.
Only the biggest insolvency firms in Australia would have the resources and skill to handle a Centro administration. The administrator would be appointed by Centro directors with advice from their lawyers as well as input from leading creditors.
Centro continues to bleed cash and test the patience of its backers. Centro reported negative cash flow of $148.3 million for six months to June 30; with restructuring costs of about $60 million; interest losses of $92.9 million and derivatives losses of $84.2 million.
Winston Sammut, investment director of Maxim Asset Management, said banks and financiers were "probably leaning towards an extension".
"What Centro has basically got going for it is time — I think if they can get an extension they will survive," Mr Sammut said. "If Centro goes into administration, its lenders will be in the same position that Centro is at the moment — with assets to sell but no buyers, or buyers at very low prices."
Centro would also owe Australian lenders and US private placement noteholders about $2.75 billion by December 15. But Australian and US noteholders must be satisfied by September 30 that Centro is successful implementing the plan it outlined in February.
Mr Sammut said Centro had failed to reassure its lenders.
"The issue for Centro is that they should be showing their lenders that they're making progress in terms of selling down some assets. Unfortunately that hasn't been the case."
It was revealed on Monday that a deal to sell Centro's stake in its American shopping centres had fallen through.
The sale of Centro's interest in the Centro America Fund was a key to its strategic plan.
It has also had limited success selling shopping centres in its Centro Australia Wholesale Fund, which has stakes in 25 Australian shopping centres.
The only possible success is the conditional sale of an Adelaide car park, on behalf of one of its syndicates, for $47.7 million.
It told investors last week it had been unable to find a buyer for the $300 million Centro Bankstown shopping centre in western Sydney. The sale of Centro Southport in Queensland for an estimated $75 million has also fallen through.
A spokesman for Centro said these were "significant one-offs" that were pulling down cash flows and that "but for those one-offs we are more than covering the interest".
Mark Wist, director of property ratings agency PIR, said there was "considerable nervousness" surrounding Centro's ability to sell its assets following the collapse of the CAF deal.
He said if Centro collapsed the reputation of Australian REITs overseas could be "impaired".
http://www.centro.com.au
CNP Price at posting:
8.6¢ Sentiment: None Disclosure: Not Held
