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The fallout from the Centro collapse -

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The fallout from the Centro collapse

Broadcast: 18/12/2007

Reporter: Ali Moore

The Australian sharemarket has been sent into a further tailspin, as investors continue to react to
news that the subprime fallout has spread to another local company. Mirvac Managing Director Greg
Paramor speaks to Ali Moore about the fallout from the Centro share collapse.

Transcript

ALI MOORE: Australia's second biggest shopping centre owner, the Centro Group, has become the
latest and biggest Australian victim of America's subprime mortgage disaster and the resulting
global credit crisis.

Centro's woes helped knock $50 billion off the value of the stock market yesterday and while
investors regained some of their nerve by the close of business today, Centro Properties Group
shares ended at just 80 cents. On Monday they were worth more than $5.

With tight credit, Centro is having trouble refinancing up to $4 billion in loans and the question
now being asked is, if a business as big as Centro is facing collapse, what does it mean for other
businesses and not just those in the property game?

Just today the latest minutes from the last Reserve Bank board meeting showed the bank thought
there was a strong case for another interest rate rise two weeks ago, but held off because of the
turmoil in credit markets.

The entire property sector is now in the spotlight including the real estate group Mirvac. Mirvac's
boss is Greg Paramor. He has 30 years experience in the industry and he joined me in the studio
earlier.

Greg Paramor, the country's second biggest retail property owner is teetering on the brink of
collapse, what's happened?

GREG PARAMOR, MANAGING DIRECTOR, MIRVAC: It's really a combination of the debt markets overseas and
their business strategy from what we can work out. You have a situation where there's very little
debt available globally, that has caused people that are borrowing short to be under pressure.

As I understand it, Centro had several billion dollars of money due to roll over last Friday and
their banks wouldn't extend for one reason or another. That puts them under enormous pressure and
that's caused the ruckus that's in the market at the present time.

ALI MOORE: Have they expanded too far and too fast?

GREG PARAMOR: I guess when they pick over the business and have a look, that may come up but I
think it's just a question of business strategy. I think they really got a mismatch between the
debt profile and their capital raising profile.

Centro's been very good at raising money into syndicates, they've been doing it for some years,
it's been very successful. They assumed, I guess, that they could keep on doing that at this time
in the cycle and from what I gather against the profile of raising money to replace debt, there was
a mismatch there and that caused this issue last week.

ALI MOORE: Can they survive?

GREG PARAMOR: I don't know the answer to that and it's not up for me to say so.

ALI MOORE: But when you look at they've got some $4 billion, they've got eight weeks to come up
with a plan, you know this game very

well.

GREG PARAMOR: Well it's going to be very difficult and the one thing I would say to the people
watching this program is you've got to look behind the scenes and see the properties are
fundamentally very, very good, particularly in Australia. The Australian assets are absolutely

first class. Their business has been strong, they've had strong retail sales. So from that point of
view that's fine. It will depend on what the

banks, the lenders want to do with the business really as to whether it can survive or not.

ALI MOORE: But if they need to raise capital, if it comes to selling assets, it will be a fire
sale, won't it, because they don't have the luxury of time?

GREG PARAMOR: That's where the banks, their bankers have to come to the party in something like
this and make sure that they give them time to get out of it. If you go back to any other time in a
cycle, if you panic and you force people into a situation where they have to sell

things, then yes, it will be a fire sale.

If people go sensibly on restructuring the business they will get through. People will get their
money back, as I said, there is nothing wrong with the assets that I can see, from where I'm
sitting, and as a consequence that's all good for the people with the assets.

The problem has been the loss of confidence in the management, I guess, and the loss of confidence
by the banks for whatever reason, which caused them not to roll the money last Friday.

ALI MOORE: You say the assets are good, have you, Mirvac, your company, looked at a rescue?

GREG PARAMOR: We haven't formally looked at a rescue, no. But I mean I guess everybody in the
market has a look, we all know one another's assets. We know Centro's assets in Australia very
well, we don't know the assets in the US.

But in terms of looking at that. it's something that one does in the normal course of business in
terms of what would be in it for us at some point.

Once again you've got to go back to the business, the directors and management of Centro and see
what they're doing at this stage.

ALI MOORE: Are you ruling out Mirvac as a white knight?

GREG PARAMOR: I never rule out anything

ALI MOORE: But it's highly unlikely at this point?

GREG PARAMOR: It's highly unlikely, yes

ALI MOORE: Any other players you could see coming in?

GREG PARAMOR: I wouldn't be in a position to comment on that. I think it would be inappropriate for
me to do so.

ALI MOORE: So what does this mean for the entire property sector? Is it a black eye?

GREG PARAMOR: Yeah, it's certainly a bruised eye. Someone's had a swipe but it's been self
inflicted. These things are brought about by the own group so it gets back to prudent management
that comes into this and most groups have set their debt on long term rollovers and that's

what you tend to do just to be prudent about that.

You don't punt on the opportunity being able to roll money at short term, you match it with the
assets and the asset sales you have. So, I think this is, if you like, in Australia could be an
isolated situation because once again I do stress the assets are very good.

It's a mismatch of the debt and equity profile of the group and that has caused this problem. That
is a management issue.

ALI MOORE: If it's one off, why have you all been tarred with the same brush on the market over the
last couple of days, you've been whacked?

GREG PARAMOR: Yeah, we have been whacked. The markets behave like that. There's a level of panic
that you've got to remember that 30 plus per cent now of Australian property securities are traded
by global groups. There's hedge funds, there's property securities group, etc.

Those people reset their book regularly and also you get private investors not knowing what the
situation is and when you do that people will sell.

I think the market came back a little. When I say came back, moved up a little bit today. There was
generally a bit more support in the market. A lot of turnover but generally more support. That will
oscillate around, a bit like throwing a pebble in a pond. The waves go out and eventually settles
down. We're going through that process at the moment. It's going to be volatile for some weeks to
come.

ALI MOORE: Should management of Centro have known what was coming?

GREG PARAMOR: Once again you'd have to ask management of Centro that. We've been in a debt crisis
for some time and I know in my own company and my own board, we're very conscious of it and
something they grill me on regularly and we're very conscious of what's happening in the rest of
the world. The rest of the world is struggling at the moment in the debt area.

ALI MOORE: Greg Paramor, many thanks for talks to us.

GREG PARAMOR: Thank you, Ali.