Grainger shares slump after pay-out offer to bondholders

SHARES in the UK’s biggest listed residential landlord Grainger plc slumped to an eight-year low yesterday after it offered an early pay-out to holders of bonds in exchange for a bigger stake in the company.

SHARES in the UK’s biggest listed residential landlord Grainger plc slumped to an eight-year low yesterday after it offered an early pay-out to holders of bonds in exchange for a bigger stake in the company.

The Newcastle company saw its value plunge by 44% to 70.75p a share after it unveiled the offer which could help cut its debts.

Grainger, which had seen its share value sink from more than 600p just three years ago, has been keen to reduce its debts as its assets are largely tied up in residential property.

British house prices are falling at record rates, down 12.4% year-on-year in September according to both Halifax and Nationwide, the two most closely-watched monthly surveys.

Grainger said in August that its property portfolio was worth £2.4bn and it had debt facilities of £1.65bn with £412m liquidity. At the same time it said it was to cut costs as strains on the housing market intensified, and it had mothballed development and acquisition drives to shore up its balance sheet. It also negotiated at extra £228m of debt funding to insulate its business from falling property prices. But it said at the time this was a defensive measure and was still confident in the eventual recovery of property prices.

Shareholders yesterday were keen to sell up before bondholders took up the offer which would dilute the value of Grainger’s stock as it issued more shares in exchange for cash.

The company said it launched the “debt for equity” offer after it had been asked by some bondholders “whether it could assist them enhance the liquidity of their investment in the bonds.”

It offered bondholders a cash payment of £35,000 per £100,000 to holders of its £112m convertible bond if they took up the offer by November 4.

Upon conversion of their bonds, bondholders who have exercised their conversion rights will receive about 11,574 shares per £100,000 principal of bonds.

If the whole issue was converted Grainger said it would “reduce reported debt by £52m and improve net assets, on a pre-tax basis, by the same amount, albeit with a modest dilution to net asset value to share.”

Some analysts were concerned by the company’s sinking value, some heartened by its action to reduce debt. And one said: “This says as much about the problems bondholders are having as any problems the corporate may have.

“What the corporate is doing is issuing shares to people who do not want to own shares, hence the share price reaction today. These bondholders may have had redemptions on their funds and have to find cash from somewhere.”

The company’s last annual financial figures were released in May when it said it had generated a 26% rise in operating profits up to £48.2m, but interest costs – allied with some tough comparative figures – had left its pre-tax profits looking distinctly lean at just £200,000.

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