Centro Set To Win Reprieve

Sydney Morning Herald

Friday January 25, 2008

Carolyn Cummins Commercial Property Editor

THE new boss of Centro Properties, Glenn Rufrano, has ruled out any fire sale of assets before meeting the troubled company's banks to persuade them to extend the February 15 repayment deadline on its $3.9 billion debt.

The banks, while not prepared to say publicly, indicated to the Herald that they were in "serious discussions" with Centro to extend the deadline and to work on a new debt refinancing plan.

In his first public briefing since taking over the helm on January 15 from Centro's founding chief executive Andrew Scott, Mr Rufrano said the company had a "severe credibility" problem. The plain fact was that the group had too much debt to be repaid at the worse period in debt markets for the past 20 years, he said.

"If the banks said they wanted out, they would sell their debt," Mr Rufrano said.

"I have comfort that the banks are not going to put themselves in a position with us that will make it untenable, for them and us."

Asked if the banks had been receptive so far, Mr Rufrano said the best way to maximise value and minimise the fall-out was for the banks to work with the company. He wanted to "work with the banks on considering an extension of the debt", he said.

"The problem we have is a balance sheet issue, and the banks care about us being the custodians of their collateral. We are being open, honest and transparent with them to convince them we are the best managers of their collateral.

"We are not going to sell any individual assets. I can say The Glen [Centro's flagship in Glen Waverley] is not for sale."

One fund manager said extending the debt and avoiding a fire sale was "the only viable option".

But a portfolio manager with ING Investment Management, Justin Blaess, said that for his fund the biggest concern was Centro's high gearing.

"It's a very risky place tobe, to own this equity. You might get compensated with very high returns if it works out, but at the other end of the scale you get zero."

Another broker said it was better for the banks to place their trust in Mr Rufrano, whom they effect appointed to replace Mr Scott, than to force fire sales.

Further market updates will be given by Centro in mid-February.

Mr Rufrano's comments were warmly greeted by investors, who pushed the shares up 13c to 48.5c, while Centro Retail Trust went up 1c to 34c.

Its main shareholder, Colonial First State, with 8.3 per cent, said the Australian assets would provide "significant value" if the company could better manage its debt.

The rescue package will include an equity injection through the sale of Centro's wholesale funds in Australia and the US, [with a combined $3.7 billion in funds under management], an issue of hybrid equity such as convertible notes and even a rights issue.

If an offer was made for all the group, that would also be considered.

Centro will open up its books to interested parties for due diligence on Tuesday, a week later than planned, and said significant interest had been shown.

However, the Diversified Funds remain frozen, while the syndicate business under the MCS banner are unaffected as the distributions are aligned to the specific assets of each fund and should not be affected by Centro's debt issues.

Centro is the country's second largest owner of retail property and owns and manages nearly 700 shopping centres across 40 states of the US.

Last last month it revealed it had debts of close to $4 billion that were due for payment by the middle of next month.

Mr Rufrano is a native New Yorker and was the chief executive of New Plan Excel Realty until it was sold to Centro last May in a $6 billion deal. He is well known to Centro's US investors and bankers.

© 2008 Sydney Morning Herald

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