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Centro keeps $1bn debt secret

CENTRO’S property group has admitted it failed to properly disclose more than $1 billion of debt in the months leading up to its $5 billion implosion this week.

Responding to a query from the Australian Securities Exchange, Centro (cnp.ASX:Quote,News) last night admitted it had “incorrectly” classified $1.097 billion of debt as “non-current” in its June 30 full-year accounts and the misstatement had been identified by its auditors.

Centro’s high level of debt caused its $5 billion meltdown this week, and its failure to properly disclose the $1.097 billion may cause it to face legal action from the corporate regulator.

Centro (cnp.ASX:Quote,News) could also be sued by investors who bought stock in the company between the August 9 release of Centro’s full-year accounts and September 6 when “the correct classification was available to the market”.

The revelations come as it emerges that Centro chief executive Andrew Scott could walk away with a $7 million “golden handcuff” payout despite having taken the company to the brink of collapse.

Under generous management arrangements, Mr Scott and other key Centro executives’ contracts include termination clauses which in total could see Centro shareholders face a bill of well over $18 million if those executives lose their jobs for anything other than “gross misconduct”.

The global credit crisis was sparked in late July by the sub-prime fallout in the US. Centro first disclosed debt funding problems to the market on Thursday last week when it placed itself in a trading halt.

On Monday, Centro announced it had been unable to refinance $3.9 billion worth of debt, and its shares plummeted from $5.70 to close at $1.32 yesterday.

The company was queried by the ASX about when it first became aware it would have “material difficulties” in refinancing its debt obligations.

Centro said it had “discussed alternative refinancing structures through the commercial bank market” between “October and early December” but the group believed until “late last week” that it would be able to refinance that debt.

“Throughout these discussions (with the commercial banks) Centro was confident that it could enter into long-term funding commitments for the maturing debt,” Centro told the ASX.

Centro’s annual report says that under most circumstances, if Mr Scott loses his job he will be paid out two times his total annual remuneration.

He earned a base salary of $1.23 million last financial year, but with incentives the package totalled $3.59 million.

Angry institutional shareholders are believed to have discussed applying further pressure to have Mr Scott and senior management dismissed.

Shareholders are expected to call for Mr Scott’s head after February 15 – the date when Centro has to refinance critical short-term debt. However, that move could be delayed until the end of the financial year to allow for the sell-off of parts of its 700-centre, $26.6 billion US and Australian shopping centre portfolio, an institutional shareholder told The Australian.

Centro is believed to have opened a due diligence room to allow likely predators to investigate buying its $2.6 billion Australian wholesale shopping centre fund.

One shareholder said yesterday that if the Australian Securities and Investments Commission launched a successful action against Centro management, then shareholders might not face golden handcuff payouts if management were sacked.

Plaintiff law firms Maurice Blackburn Cashman and Slater & Gordon said this week that they were in talks with institutional shareholders to see if litigation over lack of disclosure was viable.

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