Helical Bar is the latest of a string of property companies to raise capital by issuing convertible bonds at a high premium to share price and NAV.
The listed developer and investor run by Mike Slade yesterday raised a total £100m, exceeding its target by £15m.
“Issuing a convertible of £100m or below can be a struggle from a liquidity perspective because it minimises the pool of investors. In this case, investors are backing Slade,” said Jefferies real estate equities analyst Robert Duncan. “The conversion premium looks wide to me versus a full year 2014 NAV of 313p at 58%, but the current share price looks relatively full as well. There is a lot of capital looking for convertibles and there have been few issues.”
The five-year bonds carry a coupon of 4% and the initial conversion price is set at £4.97 per share – a 35% premium to the weighted average trading price of the company’s shares on the London Stock Exchange and a 59% uplift on NAV per share.
Appetite is high for these type of bonds owing to a combination of pent-up investor demand for good quality convertibles, a recovering property market, and equity market performance. Convertibles allow propcos to diversity beyond bank funding and their unsecured nature offers flexibility.
Several others, including Great Portland Estates, The Unite Group, St Modwen and Primary Health Properties, have already tapped the market in recent months, albeit at a cheaper cost of funding than Helical’s 4% coupon. This reflects its higher risk profile, as a developer, but is still cheaper than the average 4-4.5% coupon that is achievable by European propcos.
“The issue of this convertible bond is a further milestone in diversifying the group’s sources of funding and will contribute to lowering the group’s cost of debt and extending its debt maturity,” said Helical’s finance director Tim Murphy.
Helical will use the proceeds of the bonds to repay its existing revolving credit facilities, which will remain available to redraw at a later date. The net proceeds can be applied to its development pipeline and further acquisitions in both London and the regions.
JP Morgan Securities and Royal Bank of Scotland acted as joint bookrunners.