The future of one of Intu, Britain’s largest shopping centre owners, is hanging in the balance after a Hong Kong-listed investor backed out of talks to become a cornerstone shareholder in an emergency fundraising.
Link Real Estate Investment Trust, whose investments including shopping centres in China, abandoned talks to support Intu Properties’ planned equity-raising at the end of this month.
Intu, which owns 20 shopping centres in Britain and Spain, including the Trafford Centre in Manchester, is planning a cash-call to reduce its £4.7 billion debts. The company is suffering amid a significant rebasing of rental and capital values for shopping centres as retailers struggle to adapt to competition from online rivals.
Intu confirmed on Monday that Link was a prospective investor prompted its shares to jump 29 per cent. However, in a market update yesterday it said that Link had pulled out of talks. Its shares promptly fell by 5¼p, or 30 per cent, to close at 12¼p. Intu said that it “remains engaged with shareholders and potential new investors”.
The U-turn by Link adds to uncertainty about the appetite of investors for any fundraising. It is thought that new investors would be needed for any successful exercise, given that Intu is expected to seek at least £1 billion, with some analysts saying that it will need closer to £3 billion to repair its balance sheet.
The falling value of one of its shopping centres triggered a covenant in its largest bond and analysts have warned that further breaches are likely.
Robbie Duncan, an analyst at Numis Securities, a stockbroker, warned that with cash starting to become trapped as a result of the covenant breach, there was a “rising risk” that the Intu parent company could “face a solvency crisis”.
He said the likelihood that a number of covenants had been triggered by the recent sharp declines in Intu’s property portfolio valuation made its ability to refinance its revolving credit facility “unclear”, calling into question the company’s assumption of its status as a going concern.
However, if the planned equity-raising is unsuccessful, it could sharpen investors’ appetite for a deal to take the company private. Peel Hunt, the broker, put a 20 per cent probability on that outcome. In a note, it said: “In particular, Intu’s current distress means shareholders, we think, would be more willing to accept a takeover.”
