Smart money backs Centro Retail as long-running saga moves into the end-game
June 29, 2011 .
Whether it changes the way boards behave or not, Monday's Centro judgment in the Federal Court was another step in the group's long road to rehabilitation, and traders are positioning themselves for the end-game.
A small army of directors, advisers, lawyers, investors and lenders is working towards June 30 targets for the three key components of the complicated restructure of the group: the sale of Centro's US shopping centre assets to private equity group Blackstone for a gross $US9.4 billion ($9 billion) and a net $US1.4 billion after debt tied to the portfolio is paid out, followed by a two-stage restructure of the local rump.
The restructure will see Centro Properties swap its remaining property assets in return for the cancellation of headstock debt that totalled $3.1 billion at the end of last year, and then combine itself with a cluster of other Centro vehicles including its 50 per cent owned listed affiliate, Centro Retail, and unlisted funds including Centro Australia Wholesale Fund (CAWF) and Direct Property Fund (DPF).
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The real estate investment trust that emerges will be more than half-owned by Centro's lenders.
The odds are reasonable that the Blackstone dough will flow by tomorrow, with Centro Properties banking about $600 million and Centro Retail about $500 million.
It was in some danger of being held up by a legal attempt to injunct the transaction by Centro Properties' unhappy minority shareholder, Smartec. It believes the deal should not occur until it has been approved by shareholders, but Smartec lost that case in the Federal Court last week.
Centro argued, and the Australian Securities Exchange agreed, that the US deal did not constitute the sale of its main undertaking, something that requires shareholder approval under ASX listing rules.
Rather, it sees Centro refocusing on its Australian shopping centre assets and booking net income that is too low to trigger the ASX's ''main undertaking'' tests of a 50 per cent decline in assets, revenue, profit or equity. Smartec might argue that point again, but if it does, it will do so after the deal is done.
It is less likely that a definitive agreement for the restructure will be reached by June 30 by the raft of entities involved, including Centro Properties, Centro Retail, CAWF, DPF, sundry syndicates and the lender group.
But June 30 is only an aspirational target and key stakeholders, including the 11 big holders of Centro's headstock debt that account for more than 75 per cent of the borrowings (there are about 50 in total), are comfortable with the plan.
Security holders in Centro Properties have not been given a chance to vote on the US property sale, but they and Centro Retail holders will vote on the restructure.
As part of the plan, $100 million will be set aside for payments to junior creditors, including corporate bond holders, owners of Centro hybrid securities, security holders and class action payments.
Security holders in Centro Properties are expected to be only offered a few cents per security for consenting to the restructure, but Monday's trade of a 5 per cent block of Centro Retail showed that traders are gathering in the strongest Centro vehicle.
In a reconstruction vote, Centro Properties' 50 per cent stake will be sidelined. And Centro Retail is in much better shape than its parent.
Centro Properties' balance sheet was $1.6 billion under water at the end of last year, and the $600 million or so that comes from Blackstone will not totally fill the hole.
In that knowledge, a ''pre-pack'' administration plan is in the wings, ready for activation should Centro Properties security holders block the reconstruction. It would see key Centro properties move into administration and the underlying properties moved to the lender group, replicating the restructure security holders had rejected.
Centro Retail, on the other hand, is already showing a surplus over its liabilities: its gearing will fall to 40 per cent after its $500 million share of the Blackstone deal is banked. The restructure cannot proceed without its participation and, unlike Centro Properties, there are no grounds for a ''pre-pack'' administration if the amalgamation with Centro Properties is rejected, and no sign that Centro Retail's independent board would want one.
Centro Properties' market quote of 3.8? and Centro Retail's 38? reflect that reality: security holders in Centro Properties' 50 per cent owned affiliate simply have greater bargaining power - and the unidentified investor who emerged with 5 per cent on Monday is almost certainly part of a block that will grow and agitate for a payout sweetener as the time for security holders to vote approaches.
Read more: http://www.brisbanetimes.com.au
CER Price at posting:
33.5¢ Sentiment: Hold Disclosure: Held
