How low can it go?

Finweek English Edition - - Companies & Markets -

AN­OTHER WAVE OF PANIC sell­ing has hit dual-listed Bri­tish shop­ping cen­tre owner Lib­erty In­ter­na­tional, send­ing its JSE share price tum­bling by more than 15% last week. The counter was down to 5500c by Wed­nes­day, a level last seen in 2002/2003. That means the stock is now trad­ing at a dis­count of nearly 80% to its net as­set value.

The lat­est share price crash fol­lows a Bloomberg re­port on 22 Jan­uary warn­ing in­vestors that prop­erty com­pa­nies in Bri­tain – in­clud­ing Lib­erty In­ter­na­tional – need to raise mil­lions over the next two months to re­store their bal­ance sheets. The sharp drop in Bri­tish prop­erty val­ues has af­fected loanto-value ra­tios, forc­ing prop­erty com­pa­nies to re­pay some of their debt by end-March to hon­our loan agree­ments with banks. That means Lib­erty In­ter­na­tional may have to sell one or more of its prime shop­ping cen­tres or un­der­take a rights is­sue. But who’s got cash to buy prop­erty or take up a rights is­sue in a buck­ling global econ­omy?

Key ques­tion for SA in­vestors – who hold more than 35% of Lib­erty In­ter­na­tional stock – is whether its share price is likely to take a fur­ther knock over the com­ing weeks.

It ap­pears so. De­spite the fact a stag­ger­ing R34bn in share­hold­ers’ value has al­ready been wiped out since mid-Oct 2008, when the stock was trad­ing around R150/share, an­a­lysts don’t ex­pect price pres­sure to dis­ap­pear any­time soon. Too many risks re­main.

Not only does Lib­erty In­ter­na­tional face a cap­i­tal crunch but Bri­tain’s de­pressed econ­omy will also place fur­ther pres­sure on rental earn­ings flow­ing from its £8bn (around R112bn) shop­ping cen­tre port­fo­lio.

True, the stock of­fers long-term value, but there are prob­a­bly less risky op­tions cur­rently avail­able to in­vestors who want to di­ver­sify their as­sets off­shore.

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