Grainger’s largest shareholder urges a rights issue shortly

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Grainger’s largest shareholder is pushing for the real estate company to undertake a rights issue, dealReporter reports. Sector bankers and a person close to Grainger have said the company may need a rights issue to address concerns over a possible loan-to-value covenant breach and GBP 857m of loans maturing in the next two years.

Andy Brough, a fund manager at Schroders, which owns nearly 25% of Grainger, urged the company to undertake a capital-raising as soon as possible. He said: “You don’t want to be last in the queue of property companies [to raise capital]. You wouldn’t want to be left out, would you?” Brough said he was not aware that the company had started early marketing of a rights issue. He said a rights issue would be unaffected by Segro ‘s talks over a possible takeover of rival Brixton. Grainger could not be reached for comment on the situation.

A person in Grainger told this news service the company was considering a rights issue but gave no guidance on timing. He also said the company is in early stage talks with banks about its debt maturities in 2010. The company must also address a GBP 402m term loan maturing in March 2010 and a GBP 455m revolver maturing in December 2011. Total debt stands at GBP 1.66bn with GBP 272m of facilities undrawn. Two bankers familiar with the sector said Grainger was likely to launch a rights issue.

Although analysts expect Grainger to meet its cash flow and loan-to-value (LTV)covenants in September, they expect that a further 15% drop in its portfolio would result in an LTV of 80% which would breach its LTV covenants. At 70% the company is restricted from purchasing properties. At H1 2009 the company was at 65%.

Grainger’s sales in the first half of 2009 have been 7.4% below September 2008 net asset value and average unit sales prices in the first half of 2009 at GBP 149,000 were 29% below the same period in 2008, according to analysts. They said 66% of core portfolio value is made of units of under GBP 250,000, which is the prime buy-to-let space that is deteriorating most aggressively.

On the positive side they said Grainger had reduced purchases in 1H09 to GBP 22m from GBP 158m in 1H08 while disposals in 1H09 were worth GBP 383m. They also noted moderate interest in construction projects - expecting total sales of GBP 144m by September 2009 and the expected liquidation of the Schroders residential property unit trust (ResPUT) over 14 months, which should free up a possible GBP 13m. Grainger’s share price fell 0.31% to 160p, giving it a market cap of GBP 222.4m.

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