Fears mount for Canadian group

A CANADIAN property group controlled by the country's largest conglomerate has fallen into technical default on a large bond issue, in a move reminiscent of the lead-up to Olympia & York's Canary Wharf going in administration.

Bramalea, one of the two principal property groups controlled by the Toronto branch of the Bronfman family, has owed bondholders Cdollars 5m ( pounds 2.2m) since 30 June, and has until the end of the month to make the payment. The Bronfmans' other property company, Trizec - which has injected more than Cdollars 300m into Bramalea over the past two years - said last week it would provide no more liquidity to its troubled relative, prompting speculation about the future of the Bronfmans' Cdollars 100bn empire.

Peter and Edward Bronfman, cousins of the Montreal and New York Bronfmans who control the Seagram's distillery group, last week sent senior executives to various Canadian cities to try to calm investment advisers.

The Bronfmans' Edper group is five times the size of the Reichmann family's Olympia & York. It controls Canada's largest forestry company (MacMillan Bloedel), its largest mining group (Noranda), the largest insurer (London Life) and the second-ranking brewer (Labatt's).

Trizec - North America's largest publicly traded developer - and Bramalea together are the size of O&Y, but have a combined debt Cdollars 1bn greater than O&Y's Cdollars 13.5bn. Compounding Edper's exposure to the weak North American property market is its control of Royal Trust, Canada's second- largest building society.

An immensely complex and secretive organisation of more than 500 private companies and 40 public corporations, the Edper group has funded itself largely through inter-corporate sales of preferred shares, juggling Canada's securities and tax laws to extract the maximum benefit from its interlocking sprawl.

While this apparently worked in boom times, it does not seem to working now. Share prices of the Bronfmans' three principal merchant bank/holding companies - Brascan, Carena and Hees International - have fallen to roughly a quarter of their 1989 highs. Several 'priced-to-sell' rights offerings have gone virtually untouched by Toronto's Bay Street. And now the dividend payments on which the whole group depends are threatened by losses at the operating level. Of the five main operating companies, only the London insurance group earned enough this spring to cover its dividend.

Bramalea, which embarked on an ill-fated dollars 1bn expansion into residential construction at the top of Toronto's suburban property boom in 1989, has been negotiating a Cdollars 5bn restructuring plan with its main lenders and has sold off Cdollars 355m of assets this year.

Spokesmen for the group insist that the fears are unwarranted, and that comparisons with O&Y's collapse are unjustified. Edper says its holdings are among Canada's most profitable, that they have large unused lines of credit, and that the group's three branches have significant non-property assets. However, some Canadian investment analysts remain sceptical.