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Centro to amalgamate funds in a bid to cancel its debt

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Debt-laden Centro Properties Group will consolidate its complicated funds structure into a new, publicly listed $7 billion shopping centre owner and manager.

The detailed plan involves the cancellation of the group’s senior debt and a payment of five cents for each Centro Properties security.

Centro Properties Group, the manager of the business, has entered into an agreement with Centro Retail Trust, the owner of the group’s shopping centre assets, and other funds to merge the assets and interests of the group into a new Australian real estate investment trust (REIT).

The REIT is expected to a stable and “reasonably capitalised” new entity with a $4.4 billion portfolio of Australian shopping centres plus $2.5 billion of investments in unlisted retail property funds.

Centro Properties Group’s holding in the new REIT will be distributed among its senior debt holders in exchange for the cancellation of its debts.

Centro Properties Group chairman Paul Cooper said the group’s debt exceeded the value of its assets by $1.6 billion. He said that without the restructure it was likely the group would be placed in the hands of external administrators.

Stakeholders would probably receive nothing if that were to occur, he said.

“There are no other options available to CNP (Centro Properties Group)”, he said. “It cannot trade its way out of the debt situation – the debt is simply too large and cannot be refinanced when it matures in December.”

The arrangement includes the allocation of $100 million for Centro Properties Group’s junior stakeholders, which includes securityholders.

The securities were down 0.3 cents at 4.4 cents on Tuesday.

Centro Retail chairman Peter Dat said the new Australian REIT would offer its securityholders a steady and stable income from a portfolio of well managed and appropriately geared high-quality retail properties.

Centro is one of Australia’s highest-profile casualties of the global financial crisis, posting billion dollar losses and struggling to meet debt repayments as commercial property values plunged.

Its restructuring plan remains subject to many conditions, including court and securityholder approval, and approval from the ASX to list a new Australian REIT.

Information about the merger plans is expected to be sent to securityholders in September, and a vote held in October.