Of all the bloody nights Centro have to pick a Tuesday to make the biggest announcement of the year! Do they have any consideration for people who have a life?
I need some time to go through the announcement and run the numbers, but on the face of it, my initial reaction is:
1. I am pleased the lenders and Centro have reached an agreement which is avoiding administration. It is obvious from this outcome that they still considered there to be value in the company, some of which is retained by existing holders. It is better to be left with 10% of something than 100% of nothing, if you get my meaning.
2. Despite the 1 month gap, this plan will almost certainly be put in place.
3. This is at minimum a 3 year plan and will almost certainly see the group a) stabilised without the need for constant short term refinancing b) be able to perform an orderly sell down of assets as required.
4. CNP holders have been diluted, as we expected. You probably know that a company can issue 15% of additional capital without going to shareholders, which they are doing. Seeing as this is being done at market price, the company has a vested interest in seeing the CNP SP rise in the coming weeks. As the company says, the remainder will be with SH approval in the future.
5. By not paying dividends, CNP will become an NTA play over the coming years. Whilst the debt has killed us on the way down, it will accelerate recovery on the way up when the cycle turns, which history has repeatedly proven it will.
6. CER holders are the absolute winners in all this. As I said numerous times, I felt a lot more comfortable with CER than CNP as the year progressed and I think this has played out. With SuperLLC and CNP stabilised, CER can worry less about a) counterparty risk on the hedges (which it will slowly unwind from Centro over the coming months) b) SuperLLC default. I need to do some maths, but I think this has just provided a $300m+ windfall for CER as the impairment provision taken last half against SuperLLC can probably now be written back. We also no longer have to worry about the 28c NTA ringfenced potential loss if SuperLLC folds.
7. CER will over the coming months start trading closer to NTA (currently $1.28) discount, like other REITS. Where this will take the stock is a mystery, but I would say in time, 8c will be a very distant memory. This stabilisation will also now signal the return of larger investors to the stock - value investors first, then others will follow.
Looks like we were right, Orbis were right and Goldman Sachs in this case were very, very wrong on CER.
Just need some more time to go through things but I'll get something out a bit later.
CNP Price at posting:
8.7¢ Sentiment: Hold Disclosure: Held