An unkindness of ravens

Should the ravens ever leave the Tower of London, they say, the White Tower will fall and take with it the British monarchy. I’m hoping my holding in Raven Russia does not suffer a similar fate, but recent goings-on at the East European warehouse development company have ruffled my feathers.

I first invested in the Aim-listed company in April at 80p, well below the 2008 net asset value (NAV) of 129p. With Russia’s plans for a massive boost in road building and money pouring in from $140-a-barrel oil prices, the shortage of warehouses was critical. Rents were so hefty that they yielded twice the cost of capital. Better still was the 9.5 per cent dividend yield.

However, not a single one of Raven’s warehouses in Russia has been let for six months, and though the company’s long-term prospects remain good, the shares are under 20p and capital markets are closing up. So far, the story is a familiar one of a good company with not quite enough cash caught in an austere banking climate.

Consequently, Raven Russia last week announced a placing of up to £125m of preference shares and warrants, of which £75m was with its largest shareholder, Invesco. The terms included a £1 preference share paying 12 per cent, plus a warrant to buy ordinary shares at 25p. Buried in the release was the news of the passing of the 2008 final dividend and just 1p offered for 2009.

This is tough for ordinary shareholders not invited or able to participate. The preference shares are not only safer, but the payout is higher than ordinary shareholders ever had, and there are warrants to participate in any upside. All this is enough to leave shareholders miffed.

However, to add further complexity, Raven Russia also announced a £50m takeover offer with the placing. The company it intends to buy is Raven Mount, with which Raven Russia shares several directors and shareholders, including Invesco and Laxey Partners. Raven Mount is largely a cash shell, though it has several UK properties and it, too, would have the preference share and warrant offering.

What troubled me about this wasn’t that Raven Mount was being offered participation, but the terms. While both Raven Russia and Raven Mount were trading way below asset value, the share terms for Raven Mount were at a premium of 156 per cent to the share price of 20p. This, to me, seemed tantamount to favouring one set of shareholders at the expense of another. It would have been fairer to offer terms without a premium, allowing both sets of shareholders to gain equally.

I have had conversations with the company about this, but with most large shareholders having holdings in both companies, there isn’t much chance of changing any minds.

This has been frustrating, but the complexity of the proposals and the lack of broker research to guide the market allowed me to take advantage of the information void. While the deal was actually worth 52.5p per Raven Mount share, the shares initially jumped only to 38p. Although there was always a chance of the deal not going through, that seemed too hefty a discount for such an advantageous deal.

Here, clearly, was a better and safer way into Raven Russia, and I took it by buying into Raven Mount. Lucky I did, because the share price a few days later climbed to 47p. I’ll now get those juicy preference terms and warrants, too. Maybe this bird hasn’t flown after all.

Nick Louth is an active private investor, writing about his own investments. He may have a financial interest in any of companies, securities and trading strategies mentioned.