Intu fails in £1.5bn equity raise

Intu fails in £1.5bn equity raise

Embattled shopping centre landlord Intu Properties has failed in its attempts to raise up to £1.5bn of emergency cash and could be in trouble of breaching debt covenants by July. 

Intu had, over the past several months, been engaged in extensive discussions with its shareholders and potential new investors regarding a possible equity raise of between
£1bn and £1.5bn but this morning said it was “unable to reach the target quantum”.

The failure to get the equity raise away raises more doubts over Intu’s future, with it sailing close to the wind on a number of its debt covenants and its overall loan-to-value (LTV) ratio now standing at 65%.

The group said: “There is a risk that, depending on the performance of Intu’s business and movements in valuations, it could be in breach of certain covenants at their scheduled testing date in July 2020.”

It added it will be “seeking to take timely mitigating actions” to deal with any covenant breaches that could include seeking waivers.

While the group insisted it is in compliance with its debt covenants and is servicing its debt with a group interest cover ratio for 2019 of 1.67 times, it added this situation could change.

Within the next 12 months, Intu is due to pay or refinance £189.7m of borrowings. Settlement amounts are also due on termination of the group’s unallocated swaps in the same period. These settlement amounts would have been £93m as at 31 December 2019.

Independent valuations of Intu’s portfolio at the end of December 2019 delivered a valuation deficit of £2bn for 2019, a like-for-like decrease of 22% for the year.

A further 10% fall in property valuations would create covenant requirements of £113m under the group’s asset- level borrowings. This, Intu added, would require cures on the revolving credit facility’s net worth and borrowings to net worth covenants, involving repayment of £161m of borrowings on this facility.

The group added a further 10% decline from 2019 net rental income would create a covenant cure requirement of £34m.

Intu’s share price fell by almost 20% in early morning trading to just 9p per share. To put this into context, three years ago it was trading at 284p per share.

During its efforts to raise new capital, Intu said it received “several expressions of interest to explore alternative capital structures and asset disposals”.

It added: “Accordingly, Intu will continue and broaden its conversations with its stakeholders with a view to discussing the range of options available to the company to demonstrate the equity value of the business and to utilise its assets to provide further liquidity. These include alternative capital structures and solutions and further disposals. Intu will also continue to keep under review the feasibility of an equity raise.”

Intu will publish preliminary results on 12 March 2020.

[The news this morning that Intu had failed in its attempts to raise the much-needed fresh equity was not surprising but was all the same a huge blow for the future of the company. It could be in breach of some of its debt covenants in July but even if it does agree waivers on these, there is a mounting of debt that is due over the next couple of years that will need to be refinanced. An agreed refinancing of a revolving credit facility, that was announced last week, will now be cancelled because it was hinged on the group securing £1.3bn in equity. The equity raise quickly hit the buffers with “cornerstone investor” Hong Kong-based Link Real Estate Investment Trust performing a U-turn on its plans to take part. Where does Intu goes from here? A lot will depend on the outcome of the “alternative capital structures” it is exploring and the leniency of its lenders.]

QuotedData has published a research note on the retail market that details the structural changes taking place in the sector and profiling the retail-focused companies, including Intu. To read it click here.

INTU : Intu fails in £1.5bn equity raise

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