Centro Chief Says Debt Deal Will Save It

Sydney Morning Herald

Saturday January 17, 2009

Natalie Craig

GLENN RUFRANO, the New Yorker charged with rescuing the debt-laden Melbourne property group Centro, has flagged his departure after announcing a deal with lenders he claims could get the company "out of the woods".

The shopping centre owner, one of Australia's first high-profile subprime casualties, yesterday won a three-year extension on debts worth close to $4 billion.

But ownership of Australia's second-biggest shopping centre operator will pass to its lenders as Centro issues to them hybrid securities and new stapled securities that together will be equivalent to up to 90.1 per cent of the company.

"When you have this level of debt you need to pay it down," the chief executive said.

Centro issued new ordinary shares and hybrid securities to lenders to account for another $1.05 billion in debt and to give itself $35 million working capital.

The deal will heavily dilute the value of existing shares and investors said the company was not investment grade. Dividends have been cut until 2016, when the hybrid securities mature.

But speaking from New York, Mr Rufrano defended the strategy. "This transaction has put us very close to being able to get out of the woods entirely," he said.

However, it would be up to the board to decide whether he continued as chief executive, he said. Mr Rufrano took the reins from the architect and driver of Centro's rapid, debt-fuelled expansion, Andrew Scott, a year ago.

A class action still looms from Centro shareholders who say the company failed to properly disclose its debts at the end of Mr Scott's tenure. And fund managers say the company is yet to rate as an investment prospect.

"We're just not interested in them any more," said Austock's managing director, Alan Sheen.

Richard Morris, of Constellation Capital Management, said the stock had not been investment grade for months.

"It's still very, very uncertain from an equity investor's point of view. Clearly they've had to take this pretty radical step just to preserve some value for equity holders.

"If these hybrid securities end up converting to ordinary shares, the banks will own the vast majority of the vehicle."

Wejendra Reddy of the rating agency PIR said that until distributions resumed, which would not be for several years, the agency would ascribe a no target price.

"It isn't an investment prospect," he said. "The only reason you would stay is because of the management - it has been quite resilient. That's probably something that investors will stick around for."

Shares in Centro Properties Group, worth more than $10 in May 2007, closed up 4.17 per cent, or 0.5c, to 12.5c after they resumed trade. The separately listed property trust Centro Retail Group fell 11.82 per cent, or 1.3c, to 9.7c. Its debt matures earlier than the parent company's.

© 2009 Sydney Morning Herald

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