Monday, 17 December 2007

Credit crunch 2.0 comes down under

Another timely reminder that Australia is not immune from the effects of the global credit crunch. From the Sydney Morning Herald:

Centro securities plunge 70%

Centro Properties Group has become the biggest local victim of the US sub-prime mortgage crisis after higher funding costs forced it to downgrade of its distribution guidance, causing its shares to plunge by more than 70 per cent.

Australia's second largest shopping centre owner has downgraded its full year distribution guidance by 14 per cent to 40.6 cents, from 47 cents.

It also announced it would not pay a distribution for the first half of the 2008 financial year as it revealed it had failed to refinance $1.3 billion of maturing debt although.

Centra has obtained an extension until February 15 to refinance the debt.

The market was already expecting bad news from Centro, which went into a trading halt last Thursday, citing the need for "revised earnings guidance.

But Monday's announcement was far worse than investors expected.

By 14332 AEDT, Centro stapled securities had fallen $4.11, or 71.93 per cent, to $1.60. They closed trading at $10.02 on May 7 and have gradually slid since then on concerns about the level of debt used to fuel the company's rapid United States expansion.

Centro told the stock exchange its 2007/08 earnings would be hurt specifically by the increased costs associated with the extension of the debt facilities until February, and the expected costs of the refinancing.

"In addition, restrictions imposed on Centro's capital expenditure under the terms of the financing extension will restrict Centro from carrying out some of its growth plans in the United States which had been expected to generate higher earnings," the firm said....

....Centro said it hadn't warned the market of any potential trouble earlier than Monday because in August, when the sub-prime crisis started to push up borrowing costs and drain liquidity in debt markets, it believed that long-term refinancing would be available when it needed it.

"We never expected, nor could reasonably anticipate, that the sources of funding that have historically been available to us and many other companies would shut for business," chairman Brian Healey said.

Centro said that in August it completed a $US300 million, 10 year commercial mortgage-backed security issue "on reasonable terms", despite the fall-out in global credit markets.

This had given it confidence that it could wait for debt markets to settle before returning.

"Up until late last week, we were of the view that our short term debt obligations could be refinanced on a long term basis," Mr Healey said.

No sympathy for these guys they are leveraged up to the eyeballs. Healy must have been living under a rock if he thought his short-term funding requirements were not in doubt. Has he heard of RAMS? The obvious question now becomes; Who's next?