Is CountryWide a good buy?

MNSL answered 2 years ago …

We have to be very careful when we try to invest in financial stocks, homebuilding stocks, property stocks and some hot commodity stocks which are exposed to present credit bubble at the moment. It is better to wait till credit market calm down and till fundamentals improve for stocks like countrywide. Once we see low P/E and future developments we can invest. There will be fantastic oppportunities very soon.I think it is better to follow value masters now. We have to do thorough research before investing in this type of stocks. Now we can see credit bubble in other countries as well. I give below web site and it contains for your reading.

http://www.nbr.co.nz/home/column_article.asp?id=19836&cid=4&cname=Business%20Today

$A6 billion price collapse hits Centro Properties Group
by John Dixon, Melbourne
Trading in shares of Centro Properties Group, Australia’s second-largest shopping centre owner with 800 properties in Australia, New Zealand and the US, was suspended on Friday as the company struggled to cope with a number of issues. Trading in related Centro Retail Group was also halted.

It took little more than three weeks for Centro to go from hero to zero – on December 19 its shares were trading at $A4.34, and when trading was suspended they had fallen to about $A0.85. The fall wiped almost $A6 billion off the value of the company.

The immediate trigger for the collapse was the announcement by the company that it had $A3.9 billion in maturing debt that it was unable to roll over or refinance, due on February 15.

This news came despite Centro’s vigorous denial, back in August, of one analyst’s report criticising the company’s business model as being too dependant on short-term funding. The company continued to claim that all was well right up to a few days before Christmas, and plaintiff lawyers are now close to filing a claim on behalf of shareholders alleging failure to comply with continuous disclosure obligations. It is understood the claim may be of the order of $A300 million.

The fallout from that has brought several other issues to light, now being investigated along with continuous disclosure failures both before and after the price crash, by the corporate regulator.

It is alleged that Centro failed to properly account for $A1.097 billion in its June 30 accounts, classifying the current debt as non-current. This masked $A450 million black hole that would have shown the company unable to pay its short-term debts.

More issues are likely to be raised. There are questions about the $A10 billion merger last August of Centro Retail Trust with Centro Shopping America Trust. Documents at the time listed current liabilities of $A147.6 million, whereas it is now known that $A1.9 billion of liabilities are due before the end of 2008.

And there is concern about $A44 million in loans given to seven Centro executives to buy shares in the company. Part of the deal was that the loans would be written off if the share price tanked – as it has done.

Three of Australia’s big banks, Commonwealth, National and ANZ, each have loans of around $A1.1 billion to Centro, with between a third and half of the amounts being unsecured. Those banks, plus other lenders such as St George and Bank of America, are understood to be in discussions about relative priorities of their loans.

Centro has indicated it is open to any and all offers for the whole company or parts of it, but the threat of litigation is likely to scare bidders off from the whole entity. A data room is due to open in the next few days.
13-Jan-2008