Disclosure regime at heart of Centro

The lack of appropriate disclosure and its ultimate impact on the market has emerged as the big issue flowing from the Centro debacle, according to an analysis provided by the head of research at Property Investment Research, (PIR), Mark Wist.

In an analysis released this week, Wist said it had been reported that Centro had the opportunity to refinance its debt on a longer-term basis but preferred rather to take a punt on shorter-term finance in the expectation that debt would be cheaper and remain available to it when the time came.

“This was not the case,” he said.

“This simply highlights the sub-optimal level of disclosure from a group whose complex structure has lost favour with the market progressively over the second half of this calendar year,” Wist said.

He said Centro management had been trading on a solid reputation of EPS/DPS growth but had relied very heavily on intrinsic underlying value growth and on bloating funds under management to buy heavyweight positions in the debt markets.

“The cascading fund structure (infamously ‘cementing funds under management fee flow’ while having a cornerstone investment in each fund) worked well for the group’s profitability and value, but did little to fuel investor enthusiasm,” Wist said.

Looking over the horizon, Wist asked: “So what of the Centro Group? It is a responsible entity to a large number of trusts and syndicates and fund manager of two listed entities. Could it go into receivership as insolvency knocks on the door?”

He said that this was a possibility, but at current prices it was possible that a private equity or listed American group with sufficient wherewithal and courage could make a well timed play for the assets and fee flow associated with the group.

“However, among the due diligence would need to be a very careful examination of the group’s taxation position — little tax has been paid by the associated entities for some time and one wonders if the ATO [Australian Taxation Office] may have an interest. Convertible notes with a significant coupon may also be an option.” Wist said.