Hong Kong’s Link stays out of Intu’s survival fund-raising

• Disappointing news slashes market value by a third

UK-based mall owner Intu Properties’s hopes that realestate group Link would be an anchor investor in the capital raise it desperately needs to survive were dashed when the Hong Kong-listed company decided not to participate.

The news wiped a third off the market value of Intu, which was formed out of late billionaire Donald Gordon’s Liberty International in 2010.

The share price fell 32.8% to R2.15, the lowest level at which it has closed since listing.

British newspaper The Times said on Sunday that Link could back a £1bn (about R19bn) emergency capital raise for Intu, and that property tycoon John Whittaker’s Peel Group, which owns 27.3% of Intu, was also expected to support it.

Intu confirmed that it was in talks with the group on Monday, but said on Tuesday that it had been informed that Link would not be participating. Talks would continue with other potential new investors, the group said.

Intu is restructuring its balance sheet to lower its crippling debt, which is nearly 19 times its market capitalisation. In January, it said it was targeting an equity raise to happen at the end of February, but did not specify how much capital it needs.

Intu had net debt of £4.68bn after the six months to end-June 2019, while its market capitalisation on the JSE at the end of trade on Tuesday was about R2.99bn.

The company, which owns 17 malls in the UK and one in Spain and counts Coronation Fund Managers and the Public Investment Corporation (PIC) among its shareholders, is trying to decrease its debt levels.

Some of its retail tenants have failed to make rental payments as they lose shoppers to online retailers. Some have signed company voluntary arrangements (CVAs) with landlords, including Intu.

CVAs are signed between landlords and tenants to avoid companies being liquidated.

Landlords are offered more than if the tenant were to enter into a terminal insolvency process. In terms of these arrangements, a tenant can often pay rent selectively, which is better than the property owner not receiving any money at all. As part of its restructure, CEO Matthew Roberts said Intu was developing about 6,000 residential units comprising apartments and houses; the first project was launched at Intu Lakeside in Essex, UK in July 2019.

Intu has been a takeover target since the UK voted in 2016 to leave the EU. The fallout after the Brexit referendum included blows to consumer and business sentiment. Many commercial landlords’ properties were valued downward.

Nesi Chetty, a senior fund manager at Stanlib, said Intu was facing several challenges, many of which were not its fault, but rather common across the market in which it operated. However, it still needed a capital injection to turn its fortunes around even if it was not from Link.

“The UK retail market has been in a tough space for a while now. A softer rental market together with tenant sequestrations has put pressure on asset values. This has meant large write-downs for Intu’s assets,” said Chetty. “The company needs a significant capital injection via a rights issue to bring down its loan-to-value [ratio].”