This article is from the Australian Property Journal archive
A CHINESE bank has initiated discussions with Centro's lenders to buyout the $19.7 billion of debt owed and potentially take charge the troubled retail property group.
Yesterday the Lumar Investments Pty Ltd, representing the Centro Shareholders Association which has a 11.8% stake in Centro, requisitioned a special shareholder meeting – seeking to vote three directors to the board of Centro.
One of the directors of Lumar Investments, Li (Kevin) Zhang who is looking to be elected, told Australian Property Journal that existing shareholders were not satisfied with the deal Centro made with lenders in December last year.
He added that the deal, which will hand over 90% of the company to the banks, was not in the best interest of shareholders whom in seven years time would end up with just 10% of equity in Centro.
“We need shareholders representative on the board of Centro, because the deal (with Australian lenders) delivers little value to shareholders. This is not the solution.
“We want to prevent more loss and we want to regain shareholder value,” he added.
Centro had a gearing of 82.2% as at February 2009 with debts of $19.7 billion. Centro delivered an AIFRS loss of $2.39 billion for the half year ended December 31 2008, this included property valuation write downs of $1 billion, foreign exchange losses of $1.38 billion and other net noncash AIFRS items of $77 million.
Centro had previously stated it will not pay distributions in the near term or at least until its lenders take control of the company in seven years.
Li yesterday indicated Lumar will not turn up empty handed to special meeting.
He told Australian Property Journal that Lumar Investments has ties to the deep pocketed Chinese financial institutions.
“I can confirm a major Chinese bank has started commercial discussions with the Australian lenders to refinance Centro’s debt,”
But Li could not reveal the name of the Bank.
Currently HSBC Bank is the largest shareholder in Centro with a 16.3% stake.
Lumar is seeking to elect three directors to the board namely Li Zhang, Kieron Strahan and Ms Yik Fan Ngai.
Mr Li is currently the investment manager of Smartec Capital, Mr Strahan has been an accountant for 17 years for several companies.
Ms Yik was previously with K. Wah International Holdings, a Hong Kong publicly listed property investment and development group and was instrumental in the company’s expansion into mainland China.
It is believed that Ms Yik is playing a crucial role in setting up the potential refinance deal between the Chinese bank and Centro’s existing Australian lenders.
Late last year, Mr Zhang wrote an open letter to the Prime Minister Kevin Rudd. The letter is printed below this story.
Australian Property Journal
Kevin Zhang, investment manager Smartec Capital Pty Ltd
1 Dec 2008
Dear Mr. Rudd:
I am writing to ask for your and the government’s urgent attention on the refinancing matters of Centro Property Group and its related entities.
Centro Properties Group is the second largest owner of shopping malls in Australia. Centro and its related entities own 129 properties with a total value of $9.3 billion in Australia and New Zealand. Centro and its related entities have to refinance its $5.7 billion debt that will mature on December 15.
Media speculates that Centro’s refinancing mission will be almost impossible in today’s credit crunch.
However, I still believe that Centro Properties Group has substantial values, although there are not much shareholders’ equities left on its balance sheet. The fact is that the value of Centro’s service business that was valued by KPMG for $5.5 billion in 2007 was not added on its balance sheet.
Centro’s service business generated net income of $209.5 million in the financial year of 2008. Centro’s board and management team have done exceptional works to preserve the value for its lenders and shareholders. I cannot see any reason why Centro cannot get its debt extension in a normal business environment.
Centro made some mistakes during its expansions into US markets, so did those banks that supported Centro’s expansions. Without those banks’ support, it would be impossible for Centro to make those costly mistakes.
The Australian government now implements the bank guarantee plan to help local banks to ride out this global credit crisis. The banks in return shall help Australian companies to survive in current difficult environment. If the banks cannot help Centro, a company with consistent cash flows and substantial values, it’s hard to imagine that any Australian company that banks are willing to help except themselves. If Centro fails, it will have dire consequences to Australian property sector. The banks and Australian economy will also suffer badly.
I urge you and the government to seriously consider necessary actions to help Centro and other Australian companies to safely pass through this difficult period. I hope that not only the value of Centro can be protected, the Australian economy as a whole can be protected as well.
Yours sincerely
*Smartec Capital Pty Ltd is a shareholder of Centro Properties Group
