We saw conflicting news from two of the market’s perennial disappointers in recent years – Federation Centres (FDC) (better known as the failed shopping mall group, Centro, but now revamped) and contractor and mining services group, Macmahon Holdings (MAH), 19% controlled by Leighton Holdings.
Federation is generating nearly a billion dollars in assets sales which will be used top pay down debt, while Macmahon has been taken completely unawares by a client which has done something that could cost the contractor more than $80 million.
Macmahon shares tumbled 11.1% (or 2c) to just 16c yesterday after it sprung a major surprise by revealing that a multi-dollar mining contract at Cobar in central western NSW had been terminated without notice on Tuesday night.
Macmahon takes a surprise hit
Loss of the project could cost Macmahon more than $80 million in lost revenues over the next year.
The company said the $6 million shaft sinking contract was stopped on Tuesday night by the client, Cobar Management, which is a subsidiary of the huge Glencore trading house and miner (it took over Xstrata earlier in the year).
Macmahon said yesterday that it is trying to find out the reasons for the termination, and would advise the market of the financial implications on its business once the full details are known.
The CSA project was expected to deliver a further $6 million in revenue to Macmahon this month and $80 million in revenue in the 2013-14 financial year.
Some analysts suggested that Glencore has either decided to stop the project because base metal prices are weak (especially copper) and there’s no indication that they will rebound strongly or it is trying to cut costs by forcing Macmahon out of the project and replacing it with a cheaper contractor.
The news seems to have taken analysts who follow the stock by surprise, many have a strong buy or strong hold on the stock.
And Federation Centres has sold a half share in six of its properties, including two major Sydney suburban malls, for $602 million, taking to nearly a $1 billion the amount realised this year in deals by the group.
Federation said yesterday that fund manager Challenger has taken a 50% stake in the Bankstown, Roselands and Lennox shopping centres in Sydney; the Toormina centre on the NSW north coast; and centres in Sunshine in Victoria and Karratha in Western Australia.
Centro will remain the manager of each of the centres.
It is the second big sale of an interest in some of its centres by Federation in recent months.
It raised $371 million in a deal with ISPT (owned by a number of industry super funds) covering five centres in February.
The part-ownership deal will reduce Federation Centres’ costs and support its credit rating, CEO Steven Sewell said in a statement yesterday.
"Following completion of this transaction with Challenger and the previously-announced ISPT transaction, FDC’s balance sheet gearing as at 31 July 2013 is forecast to be approximately 22%. This is subject to the finalisation of results for the financial year ending 30 June 2013, which are scheduled to be announced in August 2013," Mr Sewell said.
"Reflecting the enhanced balance sheet strength, substantial undrawn debt capacity and an A- investment grade credit rating, FDC will look to reduce the size of its debt facilities by up to $450 million in the near term.
“We believe it is prudent to reduce the size of our undrawn debt facilities given the strength of our balance sheet and current capital commitments, resulting in immediate and future cost savings.”
The transaction with Challenger is expected to be finalised by July 31.
It is the third major mall deal in a couple of weeks. Late last month, GPT sold 50% of Erina Fair to clients of Lend Lease’s property management arm. That client is believed to be the South Korean Pension fund.
The sale raised $397 million for GPT.
Federation units closed one cent lower at $2.45 yesterday.
