1:55 PM, 5 Jan 2010| Stephen BartholomeuszSafe hands for Centro...

1:55 PM, 5 Jan 2010| Stephen Bartholomeusz

Safe hands for Centro


The directors of Centro Properties didnt have to look far to identify someone with the unique experiences and skills to lead the group through what will be an extraordinarily complex and delicate restructuring if it is to extricate itself from the clutches of its bankers. He was sitting amongst them (see Centro appoints new chief executive, January 5).

What Centro needed was someone with an unusual blend of property, investment banking and finance skills. Robert Tsenin, who joined a renewed Centro board in the middle of last year, has all those attributes on his CV.

The new Centro chief executive is a former managing director of Goldman Sachs in Australia, a former finance director of Lend Lease and has had a variety of non-executive directorships. One that could be particularly relevant to the challenges he will face was his role on the board of the International Distressed Debt Fund.

While his property experience will be important, the more useful experiences in the near term will be the roles he has had in deal-making and finance.

The Centro group is, apart from being debt-laden and having a $1.5 billion hole where its shareholder funds would conventionally be, remarkably complex. Its affairs, and ownership of its vast property portfolios in Australia and the US, are commingled with those of Centro Retail and a host of syndicates. Centro Properties acted as a central treasury, manager, service centre and co-investor with other group entities (see Centro's dollar bounce, October 15, 2009).

The current Centro chief executive, Glenn Rufrano, achieved something of a miracle in keeping the group out of administration and convincing its bank lenders to accept a moratorium and partial debt-for-equity swap that wiped out most of the other security holders.

He was aided by the fact that the Australian retail property portfolio has proved itself remarkably resilient and the US portfolio has held up reasonably well in the distressed circumstances in that market.

The next phase in the reconstruction of the Centro group will be to disentangle and simplify its affairs, separating it from Centro Retail and probably extricating itself from the US. At board and management level the distancing of the two Centros has already occurred, while some of the derivative arrangements between them have been closed out or reduced.

Centro recently appointed advisers JP Morgan and Moelis & Company to help develop a restructuring plan. Centro Retail appointed UBS as its adviser.

Given the deficiency in security holders funds and the best part of $5 billion of debt, plus the scale of the banks equity holdings, the already very complicated restructuring will almost inevitably also have to involve a massive recapitalisation.

There will be no quick or simple path to normalcy for Centro, although the quality of the underlying property portfolios and the cash flows they generate at least provides a foundation to build on.