Wednesday, May 11, 2011

The delusion of CEC?

Much comment and activity at the Journal of Ignorance on the demise today of CEC. Not kosher blogging maybe but will just update as I go here with thoughts. Many peculiarities and even the accounts published yesteday vary materially from announcement as recently as April 29. Events as far back as 2008 are worthy of attention as is the role of Warren Entsch as an 'independent' director and Chairman.

Apologies for the recent posts on CEC problems copying from PDF files of announcements to Google blogger!

To start my delusion of CEC before delving back as far as events in 2008, CEC did finally lodge accounts yesterday afternoon. However .... the bottom line on the CEC net position showed net assets of negative $41million? You should compare this with the ASX release just a few weeks before on 29 April which stated "Following the above impairments the accounts would show Negative Net Assets of around $27.6 million" Oops, just a bit of a divergence here boys? In less than two weeks?

So, lets go back in time to 2008 ......

Cairns entered 2008 on the back of a large debt fueled construction boom despite the first ripples of the GFC in late 2007 in the USA. At the end of February 2008 CEC surprised the market with a bad result and some recent high profile value investors fled (ie 452 Capital) the share register. This result preceded calls by the bank, CBA, to reduce property related debt.

CEC, in 2008, then announced a joint venture deal on its substantial land bank with Trinity Properties. These companies were previously closely aligned when CEC floated and shared directors including Keith Delacey and a senior Trinity exec. This deal collapsed early in 2008 with accusations that the CEC properties didn't stack up to values. Property write downs in that year by CEC don't seem to align with the indicated shortfall in property values in the failed JV.

CEC has had many opportunities to do something and has frequently referred to possible joint ventures, syndications, or capital raisings. Almost any company listed on ASX with any property related activity raised huge capital in 2008/2009. Selling assets was not the sole option of CEC to satisfy the bank.

So why didn't CEC follow the market? Did the directors make judgements based on Roy Lavis (26%) maintaining control rather than the interest of all shareholders?

The most striking deterioriation at CEC since it listed in 2004 was not the financials but the quality of the board. In 2004 it was an outstanding board. It is now Roy, his son, and an 'independent' Chairman, who replaced Warren Entsch, with politcal connections also as main background and Entsch's renowned sycophancy with Roy. It's an appallingly weak board which should scare any investor!

Small CEC shareholders deserve a damned lot more than has been delivered here!

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