(Updates with final vote results in fifth paragraph.)
Nov. 22 (Bloomberg) -- Centro Properties Group today averted liquidation as investors approved a plan to cancel debt and pool assets into a new real estate trust with A$4.4 billion ($4.3 billion) of Australian shopping center properties.
The vote resolves a four-year battle to stave off bankruptcy after a $9 billion U.S. buying spree between 2006 and 2007 backfired as the subprime mortgage crisis triggered the worst recession since the great depression. Approval allows Centro to erase A$2.9 billion of debt maturing on Dec. 15 and gives lenders equity stakes in a new trust to be called Centro Retail Australia.
A majority of shareholders in Centro Retail Trust, managed by Centro Properties, voted in favor of all resolutions, including acquisition of its assets and services business and a change in the responsible entity, Melbourne-based Centro Retail said in a filing to the Australian stock exchange today. Shares of both companies were halted from trading.
“Common sense is prevailing,” Peter Esho, Sydney-based chief market analyst at City Index, a London-based provider of trading services in bond, stock and commodities markets, said in an interview. “The debt burden was huge and the holders of the debt realized they needed an exit strategy. It’s hopefully the end and a lesson for listed property companies not to binge on debt to the extent that it brings down values.”
Centro Properties shareholders also approved the sale of the group’s assets to the new trust, with almost 90 percent supporting the plan. About 89 percent of investors voted to transfer the group’s share of the new entity to its senior lenders.
Centro’s hybrid lenders and convertible bond holders also backed the restructuring plan earlier today and senior debt holders will meet later today.
Centro Properties’ attempt to salvage its business looked like it was set to fail last week when some of Centro Retail’s biggest shareholders signaled they would vote against the plan, fearing dilution of their investments under some of the terms proposed. The company responded with a last-minute sweetener, offering Centro Retail shareholders a bigger piece of the new Centro Retail Australia fund.
“I’m delighted that the aggregation was approved by Centro Retail,” Centro Chief Executive Officer Robert Tsenin said in an interview after the first meeting. “I always had the view that ultimately, people will see the economic justification for aggregation. So I’ve always been quietly confident that we’d get the approvals from the Centro Retail shareholders.”
If the final votes today are in favor of the restructuring plan, and the company receives court approval on Nov. 24, it would lead to the creation of the new Centro Retail Australia fund.
A “no” vote by junior stakeholders, including Centro Properties investors and holders of hybrid securities, convertible bonds and other debt, still allows the new trust to proceed, Centro Retail said in a filing last month. The junior shareholders are voting in separate meetings throughout the day.
Senior lenders, who rank above other creditors in the event of a default, will own 72.3 percent of the new trust in exchange for the debt coming due next month, Centro Properties said. Shareholders of Centro Retail will get 15.9 percent of the new company, and investors in the unlisted Direct Property Fund will own 11.8 percent, the group said last week.
What They Get
Centro Properties investors, who won’t participate in the new entity, will get 5.03 Australian cents for each security they own, for a total of almost A$49 million, the company said. Holders of hybrid securities will receive A$20 million and convertible bond holders A$21 million, it said. The rest will be set aside to pay other non-senior debt.
Centro Retail’s portion of the trust’s net tangible assets will be 44.4 cents a share, compared with 40.6 cents under the initial plan, and 44.3 cents as of June 30, according to the company’s announcement last week.
The sweetened plan, which reduces the amount senior lenders are owed by about A$90 million, will give Centro Retail investors one new share for every 5.29 securities they currently own, compared with 5.8 shares under the earlier one.
The new Centro Retail Australia fund, with net tangible assets per security of A$2.35, is expected to begin trading on the Australian stock exchange on Dec. 14, the group said on Oct. 7. It will hold 43 Australian shopping centers valued at A$4.4 billion, and manage 27 syndicates that will own interests in 61 properties valued at A$2.6 billion.
“I’m very happy,” said Derrick Hatchard, 85, an investor who has held Centro Properties shares in the past and is now a Centro Retail investor. “The shares were worth nothing before. At least now they’ll be worth something.”
Then CEO Andrew Scott led the company in a debt-fueled, $9 billion U.S. buying spree between 2006 and 2007 in a bid to raise management income and accelerate profit growth. The move backfired when the global financial crisis caused property values to plummet and borrowing costs to soar, leaving the company unable to refinance its ballooning debt.
Its shares plunged 70 percent on Dec. 17, 2007, when it said it was unable to refinance its debt amid the fallout in the U.S. subprime mortgage market.
Attempts since then to raise enough capital to repay the debt had been largely unsuccessful, and Glenn Rufrano, who took over from Scott in January 2008, stepped down two years later to be replaced by Tsenin. Centro Properties shares have tumbled 99.6 percent since a high of A$10.02 in May 2007, while Centro Retail has slumped 84.8 percent since a January 2007 high.
Blackstone Group LP, the world’s largest private-equity firm, in March agreed to pay about $9.4 billion to buy the group’s 588 U.S. shopping centers, at a 1.3 percent discount to their value as of Dec. 31.
At that time, Centro also agreed with holders of about 73 percent of its liabilities, mostly hedge funds who had bought its debt from banks, to swap the debt for its Australian malls, and started on the road to consolidating its listed trust, unlisted funds and syndicates into one entity.
--With assistance from Edward Johnson and Angus Whitley in Sydney. Editors: Malcolm Scott, Andreea Papuc
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