The struggling Centro Properties group and the associated Centro Retail Trust have moved closer towards collapse with the failure to sell the major regional shopping mall at Bankstown, in Sydney’s Southwestern suburbs.

There’s only the best part of three weeks left for its banks and the group to do a deal to keep it going, or face certain collapse. The sale was to have been a centrepiece of Centro Properties attempts to raise funds to remain in business by convincing its various banks that it had a business plan for its future.

But this morning news that it had cancelled the sale of Bankstown Square after failing to find a buyer. It said no “satisfactory offers” were received for Centro Bankstown before the August deadline.

“As advised in correspondence mailed to investors on 3 July 2008, the Syndicate’s 50% interest in Centro Bankstown was marketed for sale in a national advertising campaign which closed in August 2008.

“No satisfactory offers were received through this process and therefore, the Syndicate’s interest in the property will not be sold at this time. Should an acceptable offer be received at some time in the future, the RE may consider selling the property,” the responsible entity CPT Management wrote to unit holders in MCS syndicate 28.

It has a debt extension deadline of September 30 with the banks. It warned last month there was no likelihood of that being extended. It’s seeking an extension of its debts with its various banking groups to stay in business past the end of the month, but also admitted that there won’t be any recapitalisation plan capable of being considered by the December 15 deadline for such a plan.

Centro warned that any plan could involve debt holders being offered some sort of hybrid share. That would dilute existing shareholders if it was accepted by the lenders. So far Centro has only been able to announce deals to sell just over $US700 million in assets in the US.

Centro Properties reported total losses of $2.053 billion in the year to June and Centro Retail, a loss of $868 million. Centro Properties has an estimated $A6.6 billion in debt, but some of that is in US dollars and the Australian dollar has dropped by more than 17% against the greenback since Centro’s balance date on June 30.

“While the asset sale program will provide the Group with liquidity and some level of debt reduction, the Group considers that asset sales alone will not provide a long term recapitalisation solution,” the company told the ASX in a statement on August 25.

The asset sale program proceeds are non existent in Australia, with only $US66 million actual in the US and the rest there still not firm.

Centro said last month:

The Group has also received and evaluated a number of proposals for new equity. The Group, in consultation with its lenders, has concluded that no proposal received to date provides an acceptable outcome which is in the best interests of all relevant stakeholders. The Group believes that, in particular given current difficult capital market conditions, an acceptable proposal capable of being implemented by 15 December 2008 is unlikely to be forthcoming.

In the absence of a recapitalisation solution in the short term, the Group’s objective therefore is to obtain longer term debt extensions from the lender groups beyond 15 December 2008 to provide a more stabilised environment for the recapitalisation process to be pursued over a longer time frame.

The failure to find a buyer willing to pay an acceptable price for Bankstown Square puts more pressure on the company, and also on the banks (with the Commonwealth, ANZ and St George among the big holders of debt). They can either call in that debt and put Centro into administration (formalising the existing situation) and take big losses on non-performing debt, or they can give it more time past September 30 and December 15 to come up with new buyers and proposals.

Centro is in trouble and although it doesn’t want a fire sale (and nor do the banks, because they lose), potential buyers see that its in a desperate situation and are not willing to pay too much for assets they know they could get cheaply in any liquidation.

Peter Fray

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