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centro punished by investors over raft of conc

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    Centro punished by investors over raft of concerns

    February 20, 2008

    INVESTORS took the knife to the troubled Centro Properties group yesterday amid concerns of future costly legal action, continued lack of disclosure and likely expenses involved in the extension of its $3.9 billion in financing agreements.

    At yesterday's market close Centro's securities had lost 17% or 11¢ to 52¢, its lowest level in the past month, while stablemate Centro Retail Trust was sold down 2.5¢ to 31¢.

    Yesterday's selling wiped out all the ground the stock had gained on Monday when it confirmed it had convinced Australian and US bankers to extend the debt repayment deadlines.

    But the decision to reclassify a further $1.5 billion in debt to short-term has angered security holders and heightened the possibility of threatened class actions.

    Brokers have allowed for between $150 million and $200 million for potential legal costs that Centro could face in the coming year.

    Concern was also raised about how much it cost Centro in new fees to get the banks' extension. Fuelling yesterday's selling was the decision by rating agency Moody's Investor Services to put the ratings of all seven classes of commercial mortgage backed securities (CMBS) notes issued by the then Centro Shopping Centre Trust in 2006, on review for a downgrade.

    Brokers and fund managers said yesterday the market was now very worried about what other disclosures could be made when Centro reports its results on February 28 and the long-term ramifications of any legal action.

    Winston Sammut, director of Maxim Asset Management, said the whole issue should be "got out of the way".

    JP Morgan, the former adviser to the Centro group and now a creditor, issued a warning that it had allowed for $150 million of legal costs and law suits in its net asset valuation.

    "Whilst (the refinancing package) is certainly a step forward, its lenders still have Centro on a very short leash. And even if Centro and Centro Retail Trust deals with the (combined) $4.9 billion (of debt) now expiring (at the) end of April there is a further $2.5 billion expiring before the end of the year, taking 2008 debt facility expiries to $7.4 billion," JP Morgan says.

    "We are also allowing for Centro to not pay a dividend for the next three halves. This can recoup about $320 million under our new forecast to pay down debt."
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