Centro's pays dearly for disclosure mistake

INVESTORS have punished Centro yesterday over its continuos debt disclosure, which is further raising serious litigation risks.

Centro shares fell 11 cents yesterday or 17.46% to close at a low of 52 cents wiping out the 2 cents gain the group made on Monday to close at 63 cents, after Centro announced it has received a temporary reprieve from its financiers on Friday.

But Centro’s announcement on Friday also dropped a bombshell to investors with the group announcing it had misreported $1.5 billion of short term debt.

This is in addition to the $1.1 billion classified as current in June 2007 and the total debt of $3.6 billion which was reclassified in September last year. Centro said so far $223.8 million of the $1.5 billion has been refinanced on a long term basis.

The latest accounting error amounts to the other mistakes Centro made, including in August last year where it did not list any interest bearing liabilities under “Current Liabilities”.

But in September, Centro’s 2007 annual report, under “Current Liabilities”, a $1.1 billion interest bearing liabilities was listed.

Finally in December, Centro disclosed that it was unable to refinance $A2.5 billion in maturing facilities and had a further $3.4 billion in debts maturing in less than 12 months and the $10.6 billion in maturing facilities beyond 12 months.

Centro also revealed the group’s distributable EPU guidance of 40.6 cents has been suspended.

Investment bank and analysts Merrill Lynch said Centro’s latest admission that it misclassified $1.5 billion of debt as non-current, among other missteps and questionable disclosure highlight the litigation risk Centro or any acquirer will face.

“It’s still unclear to us how CNP was able to keep NXL debt unconsolidated given its 50% stake in the BidCo & control over partner CER,”

In addition, ML said no details were discussed on upfront costs of the interim extensions of financing agreements.

The investment bank maintained its value of 26 cents for Centro.

Yesterday ratings agency Moody’s Investor Service affirmed its ‘B3’ senior unsecured debt ratings of Centro NP LLC.

This follows Standard & Poor’s which issued its rating earlier and maintained a ‘CCC+’ issuer credit ratings on Centro NP LLC.

S&P’s credit analyst Craig Parker said these announcements do not change the near-term probability that Centro NP could be put into default by its creditors.

Centro’s flagship fund Centro Retail Trust also suffered, closing 2.5 cents lower at 31 cents.

Australian Property Journal