the distillery: three fates

Another article in the Business Spectator this morning.

THE DISTILLERY: Three fates

Glenn Dyer

Published 7:13 AM, 1 Mar 2011


The Reserve Bank's March board meeting today seems to have avoided our jotters this morning, as did China's quaint way of revealing its new annual growth target for the next five years (via a fireside chat by Premier Wen Jiabao on the state run part of the internet. Bet you that wasn't blocked). Iron ore prices were reset for the June quarter yesterday and comments on the prospects for a 20 per cent rise were absent. Instead of these usual suspects (including fourth quarter GDP data tomorrow) we had a slightly quizzical approach to the results from QBE and Goodman Fielder, some frowning over the surprise shutdown of the ASX yesterday and signs of life in the corporate mess known as Centro. Is it possible life could still be possible in that swamp?

The AFR reports that: "The deal to sell Centro?s $US9.4 billion US portfolio that was inked in Melbourne yesterday closes a chapter on a large part of the Centro empire. Already though, the sound of soft knocking on institutional doors can be heard." The property trust from The Black Lagoon is back...

John Durie wrote in The Australian this morning that: "As Centro edges closer to survival, the Australian banks who sold their debt for as little as 50 cents in the dollar may be wondering what might have been. The decision to accept Blackstone's $US9.4 billion ($9.2 billion) bid is an important first step freeing another $US1 billion to pay down Australian debt. It is easy to be wise in hindsight, and ironically, the fact Australian banks sold out has arguably opened the way for a deal to be struck. Those who sold out earlier, like CBA, got the lowest price ? around 50 cents in the dollar."

And Nabila Ahmed in The Australian got straight to the point of how will the Centro mess be finally sorted: "The key question now is how Centro Properties Group (CNP) and Centro Retail Group (CER) syndicates and wholesale funds will be brought together under the one umbrella. It will be a fight between the Moelis-advised CNP and the UBS-advised CER, with JPMorgan as the major lender ? and an adviser ? watching with interest. The next step is to work out how the assets will be restructured. There is no suggestion a decision is close, but one proposal, focused on CER, is to merge the remaining Centro companies and their stakes in the 112 Australian and New Zealand centres without having to raise fresh equity. The other involves CNP lenders agreeing to a debt-for-equity swap ? and perhaps raising some fresh equity ? to bring the assets under the CNP umbrella. This is the more ambitious ? and controversial ? scenario because it will mean CNP securityholders will end up getting some sort of return despite the fact the head stock is carrying negative equity value." Follow the hedge funds and watch which stock they are buying.