Singapore-controlled property developer and manager, Australand is looking for up to half a billion dollars to recapitalise the company after it was hit by the credit crunch, write-downs and lower profits.
The issue was one of three capital management strategies to strengthen its balance sheet revealed yesterday when it also said interim earnings plummeted 79% in the six months to June 30.
The company wants to raise between $302 million and $557 million through a non-underwritten renounceable entitlement offer of 60c per security, a 38.5% discount to the market price of 97.5c per security before a trading halt was called yesterday to allow the issue to proceed.
The issue is more than 50% Australand’s market cap of $905 million, based on Friday’s close of 97.5c and a quarter of its investment property portfolio valued at $2.2 billion.
The size of the discount and the one for one terms are a sign of just how desperate Australand is for the new capital.
The company said that depending on the remaining level of participation, the Entitlement Offer will provide between $302 million and $557 million of additional capital that will be used to reduce gearing and fund projects in its development pipeline.
Australand’s majority security holder CapitaLand of Singapore says it will take up its full entitlement of $302 million, so the company is not at all confident that the issue will attract strong support from the other 46% of the share register, or from other investors.
Australand has also cut the payout ratio of its development business to zero to strengthen its capital management position: this policy will be reviewed at the end of 2009 and 100% distribution of its property trust earnings will be maintained.
The company will also increase its distribution rate of step-up hybrid securities effective October 1.
Australand chief financial officer Tirnan O’Rourke said yesterday the company was operating within all its debt covenants.
Australand said in the offer document that "Approximately 928 million New Stapled Securities at an Application Price of $0.60 per security will be issued to raise up to $557 million.
"CapitaLand has given an undertaking to take up its full entitlement of approximately $302 million. CapitaLand, through controlled entities, holds approximately 54% of the Existing Stapled Securities.
"An additional amount of up to approximately $255 million may be raised to the extent Eligible Securityholders and Institutional Investors take up all of the remaining New Stapled Securities offered under the entitlement Offer."
The company said in the offer document that the "proceeds of the Entitlement Offer will be used to recapitalise Australand’s balance sheet through the repayment of existing debt facilities and a reduction of gearing to within or below Australand’s target range of 35% to 40%.
"Australand’s strengthened balance sheet will ensure it is well capitalised during these uncertain market conditions and will assist it to fund its development pipeline including the measured expansion into Asia with CapitaLand.
"The New Stapled Securities will be entitled to the distribution for the six months ending December 31, 2008 which is expected to be 3.6 cents per Stapled Security if the Minimum Entitlement Offer Proceeds are raised (representing a pro forma distribution of 7.4 cents per Stapled Security and yield of 12.3% on the Application Price) or 2.8 cents per Stapled Security if the Maximum Entitlement Offer Proceeds are raised (representing a pro forma distribution of 5.9 cents per Stapled Security and yield of 9.8% on the Application Price), following the revised distribution policy. The distribution policy will be reviewed at the end of 2009."
Australand’s 79% dip in first half profit came as the company revalued real estate assets and wrote down the value of some projects.
Net profit for the six months to June 30 was $25.55 million, while operating profit for the first half rose 6% to $67.5 million, before taking into account the impact of unrealised losses from the property valuations and write-down.
The company announced a total write-down of $34.7 million on the value of some projects, in light of the downturn in the residential market in NSW. Investment property assets have been re-valued at 30 June 2008, resulting in a net reduction in asset values of $7.3 million.
Revenue for the half from continuing operations increased 6% to $436 million.
Australand maintained the distribution per stapled security at eight cents. Net tangible assets per security fell 2% to $1.66. With the market at 97.5c before the trading halt, there’s obvious a certain level of disbelief in book values.
Australand said it is forecasting full-year net profit between $171.6 million and $176.6 million, excluding property revaluations and one-off non cash items.
That will be in line with the lower end of February’s guidance of 2% to 3%.But once the write-downs are factored in, the actual result will be much lower.
Australand said the growth in the commercial and industrial business and the investment properties would be offset by the reduction in earnings in the residential business where a fall in full year earnings is now forecast.
The company said ”The maturity of the Group’s Multi Option Facility has been extended to June 2010 and the facility has been increased by $350 million to a total of $950 million. Two Australian banks were added to the syndicate supporting the facility.
"At 30 June 2008, Australand had a total of $775 million debt maturing before June 2009 or 43% of the total debt portfolio. The key component of this
