When setting out to raise capital during one of the worst financial crises of the past 100 years, it helps to have a strong bank as a big shareholder. That’s what Klepierre, a French retail property specialist, found when it raised €356.2 million through a rights issue completed at the end of November.
Klepierre’s capital increase was fully backed by its majority shareholder, BNP Paribas, which committed itself to subscribe to new shares a least equal to its existing 50.71% stake. BNP Paribas also agreed to underwrite the remaining portion of the capital increase if necessary.
"The fact that the majority shareholder says it will take at least its stake and provide underwriting of the issue was certainly helpful and an advantage," says Jean-Michel Gault, chief financial officer and member of Klepierre’s executive board. "When the market is like this it is always helpful to have a strong majority shareholder in your bank."
Gault says BNP Paribas’ support also reassured other investors and convinced them to take part in the deal. Not all existing shareholders bought in but the deal was nonetheless oversubscribed at 138.7%. This capital-raising was a partial refinancing of the €600 million Klepierre invested in Steen & Strøm, a Norwegian company specializing in shopping centres.
Klepierre acquired Steen & Strøm in July with its partner, Dutch pension fund ABP. It was a €2.7 billion deal and now the regional shopping centre company is 56% owned by Klepierre and 44% by ABP. Here again, BNP Paribas’ backing was a key to completing such a large transaction at a time when the markets were in chaos.
"We wouldn’t have bought Steen & Strøm if we were not backed by BNP Paribas. We did it because BNP said they would help out if had financing issues," says Gault.
This capital increase puts Klepierre in good stead as it has no refinancing needs in 2009, while in 2010 it has €400 million coming due out of a total debt burden of €7 billion including the consolidation of Steen & Strøm. The majority of refinancing for Klepierre will come in 2011.
After the rights issue, Klepierre has €400 million to €500 million in credit lines available and normally it generates €200 million of free cashflow each year. So it has a financing capacity of €700 million after dividend payment. It has recently launched a €1 billion disposal programme and has less than €1 billion in projects under development.
Although there is no need for new financing next year, there is another issue Klepierre must manage. After the rights issue and the acquisition of Steen & Strøm, Klepierre’s loan-to-value ratio will be at 47.4% on a proforma basis. The company has covenants in some of its credit lines that say the LTV has to be at 52%. "This is why we have launched the €1 billion disposal to get some flexibility, which will help keep the LTV below 50% in the case of correction in values," says Gault.
The disposal programme has kicked off with a small deal worth €140 million. It is considering partial disposal of stakes in shopping centres Steen & Strøm fully controls.
"In Scandinavia we are optimistic because there are very few transactions and some local institutional investors are keen to add retail real estate exposure," says Gault.