It was a year ago this week that Centro Properties and Centro Retail ran into trouble with US dollar debts that could not be rolled over in the case of Centro Properties.
The retail trust was dragged down as a result, and it was next Wednesday, December 17 when the two companies had to confess to the funding disaster and the Australian stockmarket was never the same again.
So it is some how fitting that leading brokers, Goldman Sachs JBWere have just written off any chances of the two groups surviving, or surviving with a meaningful business plan.
The latest deadline for the two groups with their banks is next Monday, December 15.
Centro Retail Group (CER) has US$1.1 billion of loans due to expire on December 15. These were last extended from late September 2008.
Centro Properties Group has $A2.3 billion due to an Australian lending group expiring on December 15 as well as a further $US450m of private placement notes. These were last extended on 2 June 2008.
Goldman Sachs said this week:
"We are moving our recommendation for CER (and CNP) to SELL from Hold. We have significant concern about the upcoming refinancing which is due mid December and needs to be rolled once again. It is our view that the likelihood of a further extension is increasingly low.
"Our reasoning is that CER has been in this financing bind for some 12 months now and, despite securing several short term financing roll-overs, it has been unable to secure any meaningful asset sales which were needed to address the debt positions.
"We believe the pricing of assets has deteriorated markedly over the past few months and that Centro has missed its opportunity of earlier in the year to offload assets.
"Consequently we believe that its debt to assets ratio has weakened markedly in recent times and it is increasingly difficult for the company to justify to its lenders that it can formulate an executable plan to extricate itself from its current position in the foreseeable future.
"Compounding our negative view is the fact that
a. Centro has a very wide range of banks syndicated into its lending pool, and
b. It has a meaningful amount of offshore lending.
"Recent equity research we have undertaken on property and banking highlights that offshore banks are increasingly pulling out of rolling over lending to Australian entities and the only way that this can be offset is by other lenders – i.e. the Australian banks – accepting to increase their own lending levels and absorb these withdrawn lines.
"With such a wide group of lenders to Centro, and continuing significant strain in the credit environment, it seems increasingly likely that the lenders will not all agree to continue to fund Centro.
"It is our view that the complicated nature of Centro’s investments (cross-holdings, joint ventures, indirect holdings, etc.) make the ongoing business opaque, and this is compounded by the damage which has been done to the overall Centro business brand due to the protracted period of stress the group has been enduring.
"The options for Centro, if it cannot extend its credit lines further, are extremely limited.
"Even if it were to survive, we believe it has no real viable alternative now than to liquidate the portfolio over time and seek to return any excess capital to investors.
"We believe that market conditions have deteriorated markedly in recent months with asset value declines becoming more apparent and showing increasing downside risk, and with the credit market issues continuing to be heavily impacted.
"We believe that the opportunity for CER or CNP to trade out of their difficulties has become ever more difficult and is now highly unlikely.
"This leaves a break-up as the only likely viable outcome and our bearish view on real estate asset values does not bode well.
"Short term debt extensions have been secured in order to allow Centro breathing room to recapitalise – this has not eventuated, and the risk for further refinancing extensions is increasing; we expect lenders’ patience for results will be waning.
"We now believe that even if a long term debt extension were secured, the damage to the brand of the core business over the past twelve months is irreparable and the ability for either REIT to be a healthy going concern is highly debatable."
The banks have already pulled the plug on ABC Learning and Allco so their patience would seem to be wearing thin.
They are also playing hardball with OZ Minerals, which has in turn complicated matters by not being transparent with its information flow about debt.
