Shares in Centro Properties Group fell from $5.70 to $1.36 yesterday. This morning they hit a low of 42c before stabilising at 76c by midday as 130 million shares changed hands — meaning that the company worth $4.7 billion last Thursday is now worth just $630 million.

And while the broader Australian stock market followed Wall Street down another 2% in morning trade, the contagion effect has stabilised as shares in Valad and Goodman both recovered marginally, although Westfield tumbled another 59c to $18.98 as investors start to get nervous about the value of its huge portfolio of US malls.

The market clearly believes the Centro management company is stuffed and it will be the lenders owed $18 billion, plus the frozen wholesale co-investors in the shopping centres who will get first crack at Centro’s 124 centres, 67 of which in the US are reportedly already on the market.

When a group is geared at 60% on inflated valuations, there isn’t a lot of margin for error, so the game now becomes how much of the nominal $8 billion of equity can be salvaged.

Continuous disclosure laws are meant to avoid such unprecedented shocks and they have clearly failed Australian investors who have collectively dropped about $5 billion of their $1 trillion of super in Centro.

The big question is how Centro Properties Group could release this profit statement on 9 August. Go to page 11 and you’ll see a table claiming it had no current interest-bearing liabilities and $3.6 billion of non-current debt.

This changed on September 18 when the annual report was released and page 34 disclosed $1.1 billion of current interest bearing liabilities and $2.5 billion of longer term debt.

Contrast that with page 19 of this presentation yesterday which revealed the following debt maturity profile for the parent company:

Two months: $2.7 billion

12 months: $1.2 billion

More than 12 months: $2.8 billion

There is a little asterisk with the note “includes shares of US JV debt”, which might explain the extra $3.2 billion of total debt not disclosed at all in the earlier statements, let alone correctly as either current or non-current.

Then, of course, there is the separate $5.6 billion of debt in Centro Retail Trust, which is somewhat more than the $1.44 billion they disclosed in the annual report sent out a few weeks ago.

However, this was before the merger with Centro America Shopping Trust was approved by unit holders on 12 October and it was clearly debt laden after the two big US acquisitions, Heritage and New Deal, over the past 18 months.

All of this looks like a pretty clear cut case of inaccurate market disclosure of debt. Wasn’t that at the heart of Enron’s problems?

*Visit the Mayne Report to listen to Stephen Mayne two ABC radio interviews on the Centro debacle.

Peter Fray

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