CNP - Centro Properties Group

michael_selway · 23 December 2007

Re: Centro faces $100m action

tronic72 said:
CENTRO Properties Group will be sued, possibly for hundreds of millions of dollars, over its failure to make proper disclosure of more than $1 billion of debt in the months leading up to its implosion on Monday.

See article at: http://www.theaustralian.news.com.au/story/0,25197,22961325-643,00.html

Shares will surly dive on Monday after this news.

Hm it may go into trading halt, then it might be game over

CENTRO Properties Group will be sued, possibly for hundreds of millions of dollars, over its failure to make proper disclosure of more than $1 billion of debt in the months leading up to its implosion on Monday.

The threat came as it was revealed that the "error" in Centro's August accounts masked a $450 million funding hole, which would have shown the company was unable to pay its short-term debts.

Plaintiff law firm Maurice Blackburn yesterday confirmed it would proceed with legal action against the shopping centre giant and said it had been in "discussions" with several of Centro's major institutional investors regarding the class action.

Maurice Blackburn lawyer Martin Hyde said the company had also been flooded with calls from Centro's "mum and dad" investors and the case looked "very strong". Following a query from the ASX, Centro on Thursday admitted it had "incorrectly" classified $1.097 billion of current debt as "non-current" in its unaudited June 30 full-year accounts, which were released to the market on August 9.

As a result, Centro's current assets were stated as $1.3 billion and its current liabilities as $656 million.

Had the $1.097 billion debt been correctly classified as "current", the June 30 accounts would have shown Centro's current liabilities were $450 million more than its current assets, which would have meant the company was unable to pay its short-term debts.

"In Centro's audited accounts $1.1 billion miraculously appears in interest-bearing current liabilities, but there is no accompanying announcement from the company, which we think is unusual, especially in the context of the credit crunch," Mr Hyde said yesterday.

"The company, we think, has just slipped it under the radar, which is cause for serious concern.

"If it's proved there has been a failure by the company in terms of fulfilling its disclosure obligations in August, then the claim group will likely involve all the people who traded from that time to this week," Mr Hyde said.

If the case is successful it will further erode Centro's value, which has fallen by about $5 billion since Monday when the company announced it had been unable to refinance $3.9 billion in short-debt because of the global credit crisis. Slater & Gordon is also considering a potential class action against Centro. Both law firms said it was too early to estimate the value of potential damages claims against Centro, but it is understood they could run to more than $200 million.

Mr Hyde would not disclose which institutional investors the firm was dealing with.

However Barclay's Group, Macquarie Bank and UBS Nominees all are expected to participate in the action.

Macquarie Bank yesterday announced it was no longer a substantial shareholder in Centro, while Barclay's Group has made paper losses of about $340 million and UBS Nominees is $210 million in the red compared to Monday's open price.

Despite those huge losses, Mr Hyde said retail "mum and dad" investors had been hardest hit.

"The human cost of this ... is devastating to some," he said. "It's a pretty awful Christmas present." The "error" in Centro's preliminary full-year accounts was identified by auditors PriceWaterhouseCoopers, and Centro corrected the figure in its audited version of accounts, released on September 6.

But aside from correcting the figure, Centro failed to issue a statement that it had changed the number. Class action lawyers Maurice Blackburn believe this caused investors to continue to be misled about the state of the company after September 6.

Centro was not available for comment yesterday, but in its Thursday letter to the ASX, the company said it did not know of debt funding problems until 12 December, the night before it placed itself in a trading halt.

"On Wednesday evening 12 December it became apparent to Centro that the margins on the refinancing would likely be sufficiently more than the margins on debt being refinanced," Centro wrote.

"As the negotiations with the financiers continued, on or about Friday 14th December Centro became aware that it would have material difficulties in obtaining the 13 month refinancing package before open of market on Monday 17 December."

Centro said its understated current liabilities posting was identified by "PricewaterHouseCoopers and management".

Australian Shareholders Association president Stephen Matthews said Centro's incorrect disclosure meant investors in Centro were provided with a picture of a "company in a much sounder financial position than it, in fact, was".

"The difference between non-current and current assets is very basic stuff and you'd have to ask yourself how and why the mistake was made," Mr Matthews said. "Centro's admission of the incorrect figure goes to show they were using short-term borrowings to finance long-term assets, which is very, very risky."

If Centro falsified the accounting for its current liabilities for non-current liabilities it could suggest the company was aware of its short-term debt-funding problems at least four months before it placed itself in a trading halt 10 days ago.

The Australian Securities and Investments Commission declined to comment about Centro, when contacted by The Australian yesterday.

If legal action is taken against Centro's key executives, they will not be forced to pay to defend that action because of a company-funded professional indemnity insurance that covers them from paying for the defence of "any civil and criminal actions that may be brought against them".

Following Monday's announcement, Centro shares have collapsed from $5.60 to close at $1.12 yesterday.

Those losses are likely to be magnified for shareholders as a result of a $120 million black hole in the company's accounts due to a generous employee benefits scheme. Under the scheme, 531 current employees have been given interest-free loans to buy 27.9 million shares and those loans do not have to be repaid if the Centro share-price collapses.

In addition to those costs, shareholders will have to pay more than $18 million if they vote to remove Centro's senior management for anything other than "gross misconduct".

Chief executive Andrew Scott could walk away with a $7 million "golden handcuff" payout, despite having taken the company to the brink of collapse.

Centro's US banks have given the company a reprieve until February 15 to find alternative sources for its $3.9 billion in short-term debt.

If the company is successful in refinancing the loans, it is expected to be forced to pay considerably higher interest rates because of the credit crisis caused by the US sub-prime fallout.

Centro may also be forced to pay more for some of its domestic debt after ratings agency Moody's Investors Service said it could downgrade $900 million of Centro's bonds which were issued to investors and backed by several of Centro's shopping centre assets.

The bonds were issued by 12 different arms of Centro and Moody's said it had launched the ratings review as a result of Centro's "overall exposure to refinancing risk".

Santoro · 23 December 2007

Will be interesting Monday then....could be in for some ridiculous prices....if they are able to get there finance and stall the court case for long enough to get into a better position, then if these go cheap enough monday (talking lower than 40 cents) might be worth risking something if you're prepared to lose it......big risk may equate to big gain....don't expect Centro to fold without a fight

tronic72 · 23 December 2007

Hmmm I'm with you there but I dunno if I've got the balls. Would have to put up at least $5000 to make it worth the risk and I'm a bit down after the last weeks trading. Tempting though. I still think they "should" be able to pull it off. What these lawyers forget (or maybe they just don't care) is, if they are successful with their suit then Centro will have a much slimmer chance of pulling it off so everyone looses

I have visions of Vulchures picking the skin of a half dead horse

eMark · 23 December 2007

From what I have read on several forums, and news sites, the SP may not drop on Monday. JP Morgan have re rated the stock at about 3.57 I think.

Santoro · 23 December 2007

eMark said:
From what I have read on several forums, and news sites, the SP may not drop on Monday. JP Morgan have re rated the stock at about 3.57 I think.

Just keep in mind that JP Morgan were holding 14+ percent of this stock a couple of weeks ago......I'd be re-rating it too in an upwards direction if my company owned 100+ million shares of it.....

tronic72 · 23 December 2007

eMark said:
From what I have read on several forums, and news sites, the SP may not drop on Monday. JP Morgan have re rated the stock at about 3.57 I think.

Hmmm. You think they don't have a lot to loose as a major share holder??? Keep in mind that rating was prior to the new they'd be sued. There's many people talking about them performing a lazarus but it's another thing to risk your cash. Might be worth a CFD though.

vishalt · 23 December 2007

Santoro said:
Just keep in mind that JP Morgan were holding 14+ percent of this stock a couple of weeks ago......I'd be re-rating it too in an upwards direction if my company owned 100+ million shares of it.....

hahahhahaha good one, of course it'd be a buy for JP Morgan. They'd be the biggest loser of Centro liquidated!

P.O.D · 23 December 2007

Hi Guys

Just wanted to give my take on this one.

Firstly there would be no way that the banks or any of the financial institutions that have a vested interest in this one would let it go to the wall. Just think about it, the banks have billions of dollars in loans to the group's different funds the ones with first mortgages such as St.George are fine - sell the property, repay the loans, the rest goes back to the investors in the fund and the fund is wound up. Centro Properties Group or CNP as listed on the stock exchange is an investor in many of these funds, which is where they get their stupid co-investment business model from, they would get some of the "left over". The issue is where the banks have unsecured loans. It has been reported that the services business where the company earns all the funds management income from was last valued by KPMG at $5b in June 2007. There have been presentations from the business that this valuation has given the company leverage to buy additional property therefore l am assuming that the company has borrowed against this valuation to fund some of these acquisitions and this would be the area that the banks would be very worried about. Any liquidation would place a nil valuation of the services business therefore the banks have a lot to lose.
My understanding is that the bank that pulled out of the deal at the last minute was the Bank of America as the loans they are talking about where the loans used to purchase New Plan Excel the lastest acquisition. With whats going on over in America the bank probably didn't want this loan on their balance sheet as at the end of December (There financial year end). Come Feburary you will find that they will come to the party by refinancing these loans at an interest rate that would be very favourable to them.
If Centro can't refinance the loans then the company would need to sell assets to repay debt and lower gearing. The problem with this is that the assets that would go would be the jewels in the crown all the better assets which as all Australian assets. Mind you they would go for a excellent price as quality retail property in Australia is as scarce as hens teeth. But then this leaves Centro with a lower quality portfolio of assets and most of them in a country on the brink of recession. Yes the assets are convience based anchored by supermarkets which are recession proof but when you have some many of them in one market even a quarter of percentage increase in cap rates is going to hurt the asset value and gearing.
Best case scenerio would be an equity injection by a joint venture which is also a possibility. If this does happen unfortunately the damage to the Centro brand is already done through poor quality disclosure and transpenacy of the business through its complicated model. A lot of investors have been burnt by this one and the ones that made this company at top 50 ASX company, the instuitational investors have been burnt the worst. Barclays and UBS were still buying the stock up until the crash on Monday, if they had no idea what hope did the mum and dad investors have. Investor confidence is gone and it will take another 10-15 years for the company to get it back. The company will be disemated by class actions from various groups and they have a very strong case for non-continuous disclosure. The class actions will only go ahead once they know the company will survive there is no point going through the courts when you come out the end a winner and there is nothing left.
I think this company will survive in one form or another but it will never be the beast it once was. As they say it takes years to build a business but only a day to destroy it!
Good luck with this one.

waz · 24 December 2007

Excellent analysis P.O.D !!!

Good to see you put some thought into it.

I agree with you, like you say, no bank wants Centro to go to the wall.

Nathan_b · 24 December 2007

24 December 2007
Centro Board Appoints Advisers
The Board of Centro Properties Group (“Centro” or the “Group”) has appointed three key
firms to serve as advisers to Centro’s Board and management to assist with the Group’s
previously notified strategic review. That review will consider options available to secure the
long term capital structure of Centro and its managed funds to reduce current gearing levels.
The advisers are:
Lazard Carnegie Wylie;
KPMG; and,
Freehills.
In seeking to refinance its short term maturing facilities and ultimately reducing the gearing
of the Group, Centro has a number of options available to it including sale of interests in
managed funds, joint venture of assets, asset sales and/or equity issuance. Centro is
required by 15 February 2007 to develop a strategic plan or “roadmap” to successfully
operate the Group on an ongoing basis.
About Centro Properties Group (ASX: CNP)
Centro Properties Group specialises in the ownership, management and development of
shopping centres.
Please visit www.centro.com.au
ASX/MEDIA RELEASE

shinobi346 · 27 December 2007

Centro ready to sell assets

http://www.news.com.au/couriermail/story/0,23739,22971762-3122,00.html

Centro ready to sell assets

Ben Butler

December 25, 2007 11:00pm

TROUBLED shopping centre operator Centro has moved a step closer to selling off some of its assets, appointing a trio of heavyweight advisers to help it work out a plan to save the company.

The company's board will be advised by merger and divestiture specialists Lazard Carnegie Wylie, accountancy giant KPMG and top-tier law firm Freehills, Centro informed the stock exchange on Monday.

Centro, Australia's second-biggest shopping centre operator, has until February 15 to come up with a rescue plan that satisfies its bankers.

The company urgently needs to refinance $3.9 billion in current debt, out of total debt of $17.9 billion.

Centro has already set up a data room, which is being used by the group's bankers to keep track of transactions.

This data room will in time be opened to potential bidders for the company's assets, sources said.

In a statement to the ASX, Centro said that options available to the company included selling off its interests in funds it manages, entering into joint ventures, selling shopping centres and issuing new equity.

It is understood potential buyers will be interested in buying real estate funds currently operated by Centro, rather than underlying assets.

First on the block could be the company's 50 per cent holding in its $2.5 billion Australian wholesale fund and its $1.2 billion American wholesale fund.

Centro chief executive Andrew Scott this week talked down the potential for trouble with corporate regulators over August filings with the ASX which failed to properly classify $1.1 billion of debt as current.

He said the accounts in which the error was made were unaudited, and a correction was made in the final, audited, report for financial year 2007.

Quixis · 31 December 2007

Centro has stated they don't need to sell assets. You got to love the media. Two weeks ago some journo's writing "The share price's journey on its way to zero". A complete dork.

Just watch the SP start rising come Wednesday. Work on facts not FUD.

brodion · 31 December 2007

Quixis,
Where is the info on sale of assets.Can u point me in the right direction??? Have not monitoring this one???

Nathan_b · 2 January 2008

Centro Board Invites Expressions of Interest
As previously advised, the Board and management of Centro Properties Group (“Centro”)
and their advisers are undertaking a strategic review process. This review includes
evaluating options to secure the financial structure of Centro and its related entities,
including Centro Retail Trust, on a timetable consistent with that agreed with the group's
banks.
Mr Brian Healey, Chairman of Centro, said, “In recent days, we have received a significant
number of unsolicited expressions of interest from a range of strategic and financial
investors in potential investments in the group and certain of our assets.
“Therefore, as part of the strategic review process, Centro is now seeking expressions of
interest for key alternatives available to it.
“This will enable interested parties to substantiate their interest, and for all such proposals to
be evaluated from the perspective of the best interests of all Centro stakeholders.”
The Board believes that it is appropriate to adopt a process that allows the effective
evaluation of any expression of interest on an equal basis and to ensure consideration of a
wide range of alternatives for the best interests of all stakeholders. Expressions of interest
are therefore being sought for either or both:
• A whole of group review, including a recapitalisation, equity issuance or acquisition
of Centro; or
• The acquisition of the group’s interests in its Australian and US wholesale funds.
Parties wishing to participate in this process should contact Centro or its advisers, Lazard
Carnegie Wylie.
For further information:
Mr Andrew Scott or Mr Jeremy Mead
Chief Executive Officer Lazard Carnegie Wylie
03 8847 0033 03 9657 8400
andrew.scott@centro.com.au jeremy.mead@lazard.com
About Centro Properties Group (ASX: CNP)
Centro Properties Group specialises in the ownership, management and development of
shopping centres.
Please visit www.centro.com.au
ASX/MEDIA

i knew this little B1TCH has legs left.

its up 20% today.

ROE · 2 January 2008

Look like they wont be able to refinance by Feb 15
so fire sale going ahead ... no one going to pay premium price for their asset knowing they dont have a choice..sell cheap or go bust

Centro is going to do a RHG style

Quixis · 2 January 2008

LOL Roe, where do you read that in the announcement?

No unless they are telling lies, Many expressions of interest = competition.

"Competition" unless in collusion doesn't equal bottom dollar prices. You should know that being in the share market.

I'd be suggesting CNP and the 3 Amigos are taking the opportunity to revisit the company's total situation regarding finances and gearing.

Some bidder may say. Okay the company is worth X. It makes Y dollars cash flow and we'll agree to take it all on board for Z much.

But it is business so who ever knows outside the company board room.

nioka · 2 January 2008

ROE said:
Centro is going to do a RHG style

There is a big difference between the two. Rams did not OWN property they only held mortgages so they had no property to sell unless by default. CNP do OWN the property so they can sell property. Only my opinion, I hold neither RHG or CNP (but I am watching CNP closely).

surfingman · 2 January 2008

nioka said:
There is a big difference between the two. Rams did not OWN property they only held mortgages so they had no property to sell unless by default. CNP do OWN the property so they can sell property. Only my opinion, I hold neither RHG or CNP (but I am watching CNP closely).

Isn't the whole problem CNP don't actually own the property? The supplier of the funding to purchase does... (or shortly will)

They are in too much debt to pay for the property they partly own...

I could have it wrong, correct me if i am...

UPKA · 2 January 2008

surfingman said:
Isn't the whole problem CNP don't actually own the property? The supplier of the funding to purchase does... (or shortly will)

They are in too much debt to pay for the property they partly own...

I could have it wrong, correct me if i am...

agreed, most of their assets are debt funded. so I dont think they'll be any better off selling the assets, if they do, the losses will be big. Even if there are lots of bidders if the sales do go through, im sure no buyers is will pay premium for properties in US at the moment.

nioka · 2 January 2008

UPKA said:
agreed, most of their assets are debt funded. so I dont think they'll be any better off selling the assets, if they do, the losses will be big. Even if there are lots of bidders if the sales do go through, im sure no buyers is will pay premium for properties in US at the moment.

I would sooner be trying to sell property that has a mortgage over it than to try and sell the mortgage. I was in this situation myself in the 80s with loans I had taken, and given mortgages over property, where the loans were in swiss franks. Another story. But I did sell property at my price and repaid the loans. I did not sell ALL my property. I had friends who allowed the banks to take the properties and sell at bargain prices. They lost out, some went bankrupt. It all depends on how much property CNP have at the end.

CNP - Centro Properties Group

michael_selway

Coal & Phosphate, thats it!

Santoro

tronic72

eMark

Santoro

tronic72

vishalt

P.O.D

waz

Nathan_b

shinobi346

Quixis

brodion

Nathan_b

ROE

Quixis

nioka

surfingman

UPKA

Let the money work for you!

nioka

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CNP - Centro Properties Group

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