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Investment Banks Underwrite Merlin’s Upcoming Capital Increase

Posted by: In: Real Estate 08 Jul 2015 Comments: 0 Tags: , , , , , , , , , , ,
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8 July 2015 – El Economista

The negotiations between Greece and its creditors have caused most Spanish companies to suspend all debt and equity transactions for the time being…But Merlin Properties is one of the few firms that will dare to raise capital this month. According to sources close to process, the Socimi will not delay its planned €1,000 million capital increase, scheduled for the second half of July, as the participating banks have agreed to underwrite the operation.

The agreement is effectively an insurance contract that Merlin has signed with the bank leading the operation – Morgan Stanley is the global coordinator – to safeguard its capital increase. As a result, the financial institutions undertake to acquire the Socimi’s shares in the event that they cannot be placed in the market during the established timeframes.

The company has paid for this contract to ‘cover its back’, given the importance it places on raising this capital. Merlin needs the money to continue to finance its acquisition of Testa, the real estate subsidiary owned by Sacyr, for which it will disburse €1,793 million in total.

In fact, it also signed a contract with the underwriting banks for its first capital increase, which it completed last month, amounting to €613.7 million, to secure the operation. (…).

As a result of that capital increase, the Socimi obtained financing to afford the purchase of the first instalment of 25% of Testa. The second phase of this acquisition, whereby Merlin will acquire another 25% of the real estate company, is scheduled for July. As such, the timetable for the capital increase must be adhered to so that the second phase can be closed within the next few weeks.

The final phase in the acquisition of Testa will be completed before 30 June next year. By that date, Merlin will own almost all of the shares in the company, with the exception of 0.4% held by minority shareholders. The plan is to merge both companies before the end of next year, into a single Socimi.

To this end, Testa must first be converted into a Socimi, and before 30 September – the deadline for the company to be able to obtain tax benefits under this framework.

The €1,000 million inflow will represent a capital increase of 47%, since the company is currently worth €2,107 million. The terms of the operation are not yet known, but a discount is expected to be offered. For now, analysts assign Merlin a “buy” rating. (…)

Original story: El Economista (by Isabel Blanco and Alba Brualla)

Translation: Carmel Drake

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