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Danny John and Matt O'Sullivan December 18, 2007 AUSTRALIA'S second-biggest shopping centre owner has joined the RAMS home loans provider as a casualty of the global liquidity crisis. Centro Property Group, with Woolworths and Coles among its main clients, yesterday revealed that the cost of borrowing at least $2 billion from US credit markets to fund its expansion in North America had soared so high that its future was now in doubt. On a day that $54 billion was wiped from the value of Australian shares, Centro's stock plunged 76 per cent, down $4.34 to $1.36. That lopped $3.5 billion off its market value and Centro is now worth just $1.15 billion - compared with $10 billion in May. The company admitted it was having big trouble repaying the debt and slashed its planned annual payment to shareholders. Investors across Australia were hit as Centro's difficulties exacerbated concerns about a looming recession in the US. In the biggest one-day fall since August, the benchmark ASX200 index fell 228.2 points to 6263.5 while the broader All Ordinaries dropped 224.3 to 6331.8. Market strategists said the sell-off illustrated that Australia was not immune to the global credit crunch nor the subprime mortgage crisis in the US, which prompted the freezing of funding markets that has hit companies such as Centro and RAMS. "The subprime situation is a bit like Voldemort - you never know when he is dead," Nomura Australia's market strategist, Eric Betts, said yesterday. "People are worried about the fragility of the financial system. The era of cheap debt is over - and that was really brought home with a thud." Last week central banks in Europe and North America tried to avoid US recession with a commitment to pump $100 billion in liquidity into the financial system. Market strategists expect the severe volatility on the Australian market to continue for at least the next two months as investors search for safe havens in companies without high debt or exposure to the US economy. |
