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VitaBella:
26 Nov 2019: Many things u wrote is not true and I have logical reasons to dispute that. Regardless, let assume what u wrote is true. INTU or any REIT companies do not do valuation themselves. Whatever valuation, one should accept that as true value (rather, in most cases, they are un-dervalued).
1. As of H1-19 , total assets =8.3bln, total net debt =5.3 bln, net assets 3 bln. By now value of total assets has reduced, hopefully by not more than 10%. With LTV highest than anybody else, net assets value are shrinking very fast. We do not know where the bottom is. But if the values drop by 30% , no net value left.
In their November statement, referring to period from 1 July to 1 Sept, INTU sold a chunk of their UK assets 13% above their Dec 2018 valua-tion.
https://www.intugroup.co.uk/media/6597/q3-2019-trading-update-pdfdocx.pdf
Page: 3
— disposed of a further £21 million of sundry assets, 13 per cent ahead of their December 2018 valuation. Year to date, proceeds amount to £33 million from sundry asset disposals
Thus, u cannot say that real valuation of INTU properties has decreased, rather, it is possible that they may have recovered.
Secondly, and most important is that, other than INTU, share prices of most REIT companies holding retail properties has gone up over last 6 months … so, why INTU has gone down? If INTU is losing value of their investment, other REIT companies should lose value of their assets too. … Seems mysterious. ??
Now, lets talk about Right Issue:
10 top shareholders hold more than 80 percent shares, right?
If there would be rights issue, it is they who would foot the bill, right?
As u mentioned, we may not have seen the bottom yet. It means, what-ever amount INTU raises as Rights Issue, it may not bring INTU out of trouble. So, more rights issue or going to receiver.
In present situation, INTU needs £1 billion to bring debt below 50 per-cent. INTU in 2021 and 2022 combined, needs £2 billion to pay debt.
INTU has 2 choices (now ponder):
1: Reschedule debt, what every company would do and in normal cir-cumstances, INTU would have done that (I believe, instead of raising equity, INTU would do that anyhow).
2: If INTU do not want to get debt rescheduled than they would raise equity. For that, they would need £1 billion to £2 billion. Let say, £1 bil-lion.
2a: Rights issue means, big shareholders buy over £800 million worth shares … and would still be in same position what they are now. If fur-ther write down of properties happen, there £800 million would go in thin air. So, why they would risk their capital if there is chance that fur-ther write down of properties could happen?
2b: No rights issue, but issue of Preferential Shares worth £1 billion. IN-TU can ask Shareholders as well as outsiders to subscribe for Preferen-tial shares. INTU raises £1 billion or £2 billion, would not matter. Obvi-ously, big shareholders can subscribe for these shares with less risk t
intu is now a long game. Property prices may go down but ultimately go up. A few giants of the shopping centre have fallen. new shops take over and fill the gap, as long as the interest is paid the debt will go down. its just a matter of time. Don't expect the issue to disappear over night. Refinancing is the option when the next tranche of money is due. Buy low sell high.
Umeed, I am a shareholder and I wish I could be as optimistic as you. This my brief take on the intu current position:
1. As of H1-19 , total assets =8.3bln, total net debt =5.3 bln, net assets 3 bln. By now value of total assets has reduced, hopefully by not more than 10%. With LTV highest than anybody else, net assets value are shrinking very fast. We do not know where the bottom is. But if the values drop by 30% , no net value left.
2. With such difficult market, dropping valuations and very high LTV, banks may refuse to lend money or refinance. That would be bankruptcy
3. With net revenue and net income shrinking, committed capex, existing loan covenants breaches intu will be cash flow negative in 2019.
4. Starting from beginning next year, we will need to return between 700mln and 1bln every year for 4 years to our lenders. There is no way we can do that. We can only ask for extending loans, refinancing. If our LTV is high, I would say >50%, if anybody lends in this market ( big assumption) it will be at high interest rate, cost of debt. Please remember that intu now pays about 4.3% cost of debt, which is highest of any listed REIT I know. Anything higher will be also killing intu.
So far, management did very little to have good LTV. They took on a lot of debts in the wrong time and were very slow in selling assets. If they sold some big assets 2 years ago, we would be happy now.
Instead, our window for survival is narrow now.
We absolutely desperately need 1bn new equity money, probably rights issue AND we also need about further minimum 1bn of disposals of assets AND we must hope that the bottom of the market is close. If these three elements happen and are executed well, intu will be slimmer but share price will at least triple.
VitaBella: IMHO I do not think INTU would go for any Share Issue (ordinary shares or preferential shares).
They have nothing to pay towards debt this year and would have to pay around £1 billion next year (2021). Fortunately, even if they do not ask for rescheduling their debt next year, they would have enough to pay their next year debt without borrowing.
But then, all companies borrow to pay their debt, and it is possible that they might borrow next year to pay their debt. But may not, so that to reduce their debt to asset ratio below 50 % if there is at mist 10 % devaluation of their assets.
Well, to raise £1 billion for next year (2021) debt payment, they would need to use approximately £500 million they already have plus they would get another £150 million plus from 2020 profit. On top of that, they would need proceed of more than £350 million (as expected) they would get from sale of Spanish assets. INTU might succeed in selling some of their British assets too. That is my belief after looking at their books.
VitaBella: ' Rights issue is not dilutive if shareholders take their rights. So, JW will not be diluted if RI are to go ahead. RI is a fair way to raise money to all shareholders.'
Well, top 10 hold over 80 percent of shares. If there would be rights issue. they would still hold 80 percent of shares, no more no less, unless they buy shares from open market (what they can do even now). Unfortunately, whatever they would invest to take up their rights, that fund giving them ordinary shares, would have same security what other ordinary shares would have. That means, they would get no dividend and if company goes bankrupt, they share the residual with other shareholders equally. So, what would be their advantage? Nothing.
On the other hand, if they take preferential shares, they get interest on their investment, plus, if company goes bankrupt, they get their money first before a penny goes to ordinary shareholders. So, they would benefit due to interest on their invested (preferential shares), plus their investment would be safer than ordinary shareholders capital return. Obviously, if they want to increase their shareholdings, they can buy more shares from market anytime, without problem. So, unless they are completely dumb, they would never go for rights issue.
''I am concerned that there maybe some insider job and a big chunk of company will be given to new company for cheap. That would be unfair for all other shareholders''.
If most shareholders were small or trusts holding the shares, that would have been possible. But with over 80 percent shares held by few, especially one person (whittaker) holding over 27.3 percent shares, this is not possible. Anything that BOD could do, they would need 75 percent vote of existing shareholders.
Actually, if shares are pledged, they may not be able to vote. It seems, Mr Whittaker shares were under pledge too, but he got it out of being on pledge, means he would vote and would vote to safeguard his interest, and that interest is not to let the company go cheaply to some outsiders.
Remember, at the end of 2017, INTU had approx £10.5 billion in properties, that has decreased to £8.5 billion in value. With £4.7 billion debt, INTU has £3.8 billion properties and that belongs to mostly these big shareholders. Why they would let it go cheaply, unless they are bunch of idiots? Right? :)
Rights issue is not dilutive if shareholders take their rights. So, JW will not be diluted if RI are to go ahead. RI is a fair way to raise money to all shareholders.
But RI maybe only part of the solution. My concern is how the other part of money will be raised. Selling properties would be good but looks like it is difficult at this time.
I am concerned that there maybe some insider job and a big chunk of company will be given to new company for cheap. That would be unfair for all other shareholders.
John Whittaker holds 370,224,572 ordinary shares representing 27.322% of the ordinary shares in issue. Pledges released by peel on 20 Jan 2020 was 53,000,000 Ordinary Shares. For any rights issue, INTU would need 75 % of shareholders vote and Whittaker with Over 27 % shares can solely stop that.
I do not think that INTU would raise capital from shareholders, as it is unlikely that John Whittaker would allow that and with over 27.3 % shares in INTU (most of them bought at over £2.50) ... Whittaker could easily stop any refinancing, diluting his own holdings.
Obviously, if refinancing happens, Whittaker would never be able to re-cover his investment (and belief on INTU future). Present asset value per share is over £2.50 but with dilution of shares, biggest loser would be Whittaker.
Thus, Whittaker would make sure that INTU management sell assets to reduce debt, rather reorganise company share account and write off huge share paid up capital.
I do not think, INTU need to refinance using rights issue anyhow. They are already getting over £100 million a year from INTU profits that should have got distributed to shareholders as dividend. If they cannot reduce the debt using that plus refinance the loan, that would be in-competency and it also mean. with their ability, they would lose any raised capital anyhow.