Centro Insisting On Getting Book Value

Sydney Morning Herald

Thursday January 31, 2008

Edited by Danny John xchange@smh.com.au

When it comes to property, book value and reality can be quite different matters.

POTENTIAL buyers who registered in Centro's virtual data room yesterday for its interest in two unlisted vehicles, Centro Australia Wholesale Fund and Centro America Fund, are being asked to pay book value or more, according to market players.

The local fund has $2.6 billion of funds under management and there is $1.1 billion in the US portfolio.

Listed property trust managers have in the past said that they were more interested in Centro's individual assets.

But these assets are all bundled into the two funds, so it's a matter of buy one and get the rest. That could well limit the number of listed trust participants, which would find trouble raising the money, leaving superannuation funds as the more willing bidders.

A survey has emerged of US institutional property investors, 80 per cent of whom say a recession is not far away.

Property investors said this was not good news for any one looking at Centro's US assets. UBS did the rounds of its leading clients a week ago, where 68 per of the respondents said they expected average values for direct property to fall by more than 5 per cent, with 44 per cent believing credit market instability would put more pressure on the listed property trust sector.

"Respondents offered a generally cautious tone, which supports our current preference for LPTs that have strong internal growth prospects, strong balance sheets and seasoned management teams," UBS said.

Centro Properties gained 0.5c to 65c yesterday while its Centro Retail Trust was up 1c to 47c.

Power to the lenders

Just a few short months ago the fact that a ASX 200 company was engaged in the re-financing of $2 billion-$3 billion of debt would have been of little more than passing interest to investors, knowing that completion of the arrangements was a mere formality.

But that was before the global liquidity crunch, whose spreading effects have seen once readily available corporate credit dry up quicker than the Murray-Darling Basin.

Such is the situation in which Babcock & Brown Power finds itself as it seeks to clean up its balance sheet following its participation in the $8 billion takeover and then break-up of the power generator Alinta.

It is the timing involved - a desire by the company to complete the deal by March with an absolute deadline to have $2 billion of new financing in place by September - which has caused some uncertainty to creep into Babcock & Brown Power's share price.

For the utility team at Goldman Sachs JBWere, which has just initiated coverage of Babcock & Brown Power, the debt issue is a material matter as to the immediate prospects for the stock, which it reckons could hit $2.60 by the end of the year.

While that helps justifies the team's belief that investors should hold on to the shares, Goldies isn't prepared to go any harder than that until the refinancing issue is out of the way.

Little wonder then that the securities were off 11c at $1.99 by the end of trading.

Will it ever end?

There'll be a collective sigh of relief from all sides when the drawn-out $2.65 billion battle for the medical facilities and pharmacy group Symbion finally reaches its end game.

But that won't be soon after predator Primary Health Care yet again extended the deadline for its $4.10 a share offer, this time to February 21.

Engaged in informal talks with its recent rival bidder, Healthscope, about securing its 11.9 per cent support for its offer, Primary has still to win majority support from Symbion's investors despite its bid being 21c a share better than its target's share price of $3.89.

With Symbion fiercely questioning the support of Primary's lenders (who are providing much of the finance for its all-cash offer), the trickle of acceptances remains just that.

By yesterday's cut-off point to extend the bid period, support from institutions for Primary's offer had reached 21.78 per cent which, added to its own 22.51 per cent holding, took the total up a smidgin from the last notice to 44.29 per cent.

Whilst Primary may eventually get to a majority stake, giving it control of Symbion's board, reaching 90 per cent - the key condition for the underwriters to hand over the cash - is looking more problematic.

According to the defence team, about a fifth of Symbion's shares are held by retail investors who are likely to go with whatever recommendation the board makes and, at the moment, the board remains implacably opposed to what it says is a low-ball offer.

The other fly in the ointment is, of course, Healthscope, which would really like to take all of Symbion with its one-time private equity partners but might settle for its Victorian pathology business if a reasonable deal can be struck with Primary.

But with no apparent love lost between the two after Primary scuttled Healthscope's original $2.8 billion agreed deal with Symbion, there is little guarantee of agreement. There some way to go in this game yet.

Banks whacked

Yet another bumpy ride on the market yesterday saw the banks get walloped - and significantly more in percentage terms compared to the overall 1.71 per cent fall of the ASX 200.

Having seemingly escaped the more direct effects of the credit crunch, it is the wider fall-out which is of increasing concern to investors with the Commonwealth Bank, in particular, in their sights.

Market watchers reckon the Commonwealth is the among the biggest players in the margin lending business, whose recipients have found themselves especially exposed to the recent stockmarket falls.

CBA shares shed $2.71, or 5.2 per cent, to close at $49 as these concerns added to more general worries about overall bank profit margins, as witnessed by their needs to raise their standard variable mortgage rates by as much as 0.2 per cent above official cash rates to rein in money-losing business.

Dragon's margin

St George Bank was also in the firing line yesterday, losing almost as much as the Commonwealth in percentage terms - $1.48 to $28.50 - after it increased its latest bond sale, the group's largest in three years, by $100 million to $900 million.

While the issue was snapped up by investors, particularly from overseas, it was the pricing involved - 39 basis points over 90-day bank swap rates - which caused some angst back home as it showed there are few signs of the credit crisis abating just yet.

And with the banks paying more to borrow (so hitting their margins), it is also another indication to the wider market that those borrowing from them will also be forking out extra for the same privilege.

© 2008 Sydney Morning Herald

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