After predicting the sky was going to fall in on Monday with cancelled distributions and redemptions, previously undisclosed billions of short term debt and a CEO only prepared to say Centro was solvent until 15 February, today the company released this bullish update which sent its share price surging.

The key points are as follows:

  • All our banks require is a “road map” by 15 February and this may involve equity raising, assets sales, joint venture disposals or an exit from the managed funds business.
  • Any sales of the 800 centres in Australia, New Zealand and the US will be done in an orderly manner and no bank or investor can force Centro to sell anything.
  • There are no lending covenants involving market capitalisation and there are no breaches of any other lending covenants.
  • You critics claiming we overpaid for second rate American malls should take note that last week one of our funds sold a New York mall for $US78.3 million, 30% more than book value.
  • About that distribution we cancelled, well that might only be a deferral and we might even do a special make-up distribution before year end if we can refinance.

After starting the week worth $8 billion, the nadir yesterday was about $1.4 billion but today parent company Centro Properties has rocketed 54c to $1.34 by midday with another 131 million shares changing hands whilst Centro Retail Trust is up 26c to 91c, giving a combined value of more than $3 billion.

The respective lows yesterday were 42c and 50.5c, so some traders in the parent have enjoyed gains of more than 300%.

The Herald Sun’s George Lekakis had the best Centro yarn today, revealing some of the specific bank exposures. CommBank is in the most interesting position with a $1.3 billion unsecured loan and equity investments on behalf of third parties that were worth $730 million last week and only about $330 million this afternoon.

JP Morgan has been the major adviser to Centro for the past five years and it has the biggest single exposure of more than $2 billion.

Why on earth Morgan and CBA couldn’t strongarm the other banks to roll over Centro’s debt and then secure some quiet assets sales and new equity remains a mystery. At least those Chinese Walls were working well, but reputation is everything in funds management and financial services so the banks have succeeded in destroying the Centro brand.

The banks will lose nothing, but the millions of Australians they represent through super funds have still done their shirts. Isn’t that a massive conflict of interest? Surely the same institutions should not be running their own debt and third party equity given the fundamental conflicts between these two different types of capital.

*Check out the Mayne Report Rich List with more than 400 names of people not mentioned by BRW but worth more than $20 million.