Home Intu shares plunge after group abandons cash call
March 5, 2020
UK shopping centre owner Intu has abandoned a proposed cash call weeks after disclosing it and warned it may breach more debt covenants, prompting fresh doubts about its future.
Shares in the indebted London-listed property group almost halved on Wednesday, hitting a record low and giving the company that had hoped to raise more than £1bn a market value of a little over £100m.
“Following discussions with its shareholders and potential new investors regarding a possible equity raise of £1bn to £1.5bn, [the company] has concluded it is unable to proceed with an equity raise at this point,” Intu said in a trading update.
The group, which is saddled with net debt of about £4.7bn, said it would consider other arrangements, including “alternative capital structures and asset disposals”.
Intu has been approached by a number of private equity groups interested in either buying or becoming an equity partner in some of its stronger assets, such as the Trafford Centre near Manchester and Lakeside in Essex, according to one person briefed on the situation.
However, the person added that the company was more likely to sell its smaller centres to generate cash, which could be used to support a slimmed down portfolio of better-placed malls. Intu has moved to dispose of a number of its assets for nearly £600m in the past year.
The company is still hopeful of raising some new equity from existing and new shareholders, according to two people with knowledge of its plans, although much less than previously targeted. Any raising would take place alongside a wider reset of group debt facilities to prevent future breaches of covenants.
However, the company said that while it was complying with its debt covenants, it could breach some of them at their scheduled testing date in July, as property valuations continued to fall.
Chief executive Matthew Roberts denied the company was in crisis talks with investors. “There’s a real difference in the way our business is being valued and the operating performance of Intu. I am not in crisis mode,” he said.
“If we collectively . . . agree [with investors] that disposing of assets is the right thing to do, it will be an orderly disposal,” he said.
Intu has been hit hard by the collapse of a series of retail tenants amid the slowdown in consumer spending in the UK.
Plans for a cash call were first disclosed in January, with the company saying last week that it would need at least £1.3bn. But difficulties soon emerged. Hong Kong-based Link Real Estate Investment Trust last month performed a U-turn on its plans to take part in the equity raise, sending Intu’s shares down by a third.
The value of Intu’s bonds plunged on Wednesday, as investors grew more nervous about taking losses in a potential debt restructuring.
Its £375m convertible bond plummeted by 25p in the pound to trade at less than half of its face value. While this debt is not secured on any of the group’s properties, it would rank ahead of the equity in an insolvency.
Intu’s asset-backed debt was also hit, with its £485m MetroCentre bond falling more than 10p to trade at 79p in the pound. The declining value of the company’s shopping centre in Gateshead triggered a covenant on this bond — Intu’s largest — in January.
The debt backing Intu’s shopping centres typically carries conditions linked to a “loan-to-value” ratio, which measures how much the property is worth versus the amount that has been borrowed against it. Declining valuations on its shopping centres lead to higher loan-to-value ratios, which in turn trigger covenants that allow lenders to impose new conditions or even take control of the asset if Intu does not stump up cash.
“Intu is financially straitjacketed in a falling market. Nobody seems prepared to catch the falling knife,” said Mike Prew at Jefferies.
He added that “this will send shockwaves through the real estate industry”. “Even if the company manages to continue for six months, this moves it closer and closer to the debt providers.”