gearing levels now around 50 percent, page-9

OK here are my calcs assuming Super LLC is put into administration/receivership:

Value of assets in Super LLC: US$2.7 billion ($3b - $0.3b write down)
Debt in Super LLC: US$2.0 billion

If Super LLC goes under, CER will only liable for the equity in its investment in Super. That is a write off of US$0.7b.

As at June 30, the value of its US investments was US $6.1b (at a spot rate of 0.9626)

A write off in Super LLC, would bring its US investments figure down to US$3.4b.

Using a current exchange rate of 0.7, the AUD value of its US investments would be: A$4.86b

Add: The Australian portfolio value of A$2bil and you get a total portfolio figure of $6.86b.

To work out its current debt position and the currency of the debt, you would need to refer to the final few pages of the CER supplemental information report on 29 August.

Total US debt as at June 30 is $3.6b.

Of the $3.6b, $2b is in relation to Super LLC and can be written off.

Therefore, only US$1.6b needs to be converted to AUD.

The AUD balance of this debt is $2.3b.

Total debt payable is A$2.3b + A$1.3b = A$3.6b

Gearing is calculated as follows: $3.6b/$6.86b = 0.525

It should also be noted that almost $0.1b was realised from the sale of assets during September and assuming a conservative $0.2b operating profit is made for the 08/09 financial year, then $0.05b should be added to the asset base.

Its adjusted gearing ratio would then be: $3.6b/$7b = 0.514

Now lets assume that Super LLC remains a going concern, the portfolio value would be calculated as follows:

US$6.1b/0.7 = A$8.71
+ Australian portfolio of $2b
= A$10.71b

The debt value in Australian dollar terms is calculated as follows:

US$3.6b / 0.7 = A$5.14
+ Australian debt $1.3b
= A$6.44b

Gearing ratio would be: $6.44/$10.71 = 0.601

That is a massive 9% difference compared to the scenario that Super LLC goes into administration.

However NTA would be $1.88 per share ($4.3b equity/2.28b shares on issue) so upside would be much greater but with a higher risk.

Lets say Centro manage to offload Super LLC and CER's share of the proceeds is US$0.2b, which means a further write off of US$0.5b. This is a realistic scenario.

Going back to my first example the portfolio value would now increase to $7.285b. (The AUD value of $0.2b is $0.285)

The gearing level would now be $3.6b/$7.285 = 0.494

This is now under 50%.

However, NTA would be significantly less at $1.57 per share.

Either way CER is a great buy at current levels.

There is an extremely small chance IMO that CNP will be put into adminstration. I can see a debt for equity swap eventuating for CNP. It would not be in the banks interests to flood the market with $25b in properties. It would adversely impact valuations of all other commercial properties, which may trigger debt covenant levels for some properties owners leaving the banks in a mess.

As long as CNP continue to pay the interest, that should keep the banks happy.

By the way, I do not hold CNP. Too much uncertainty regarding a likely debt for equity swap. CER is the much safer option and I can see some healthy distributions from CER in the forseeable future.

Cheers