S&P adds to Unibail's woes with rating cut
Unibail-Rodamco owns major shopping centres like Forum des Halles in Paris. Photo: Supplied

S&P adds to Unibail's woes with rating cut

Credit rating agency S&P has pushed its rating of French shopping mall giant Unibail-Rodamco-Westfield (URW) below A-grade, after a pair of activist shareholders this week thwarted the company’s plan to cut debt with a €3.5 billion ($5.7 billion) equity raising.

The agency on Thursday said it would drop its long-term issuer credit rating to BBB+ from A-, leaving Unibail’s bonds just a couple of notches from the bottom of investment grade.

S&P also put the rating on a “negative outlook”, saying it did not see a way back to A-grade status for URW in the next two years.

The agency also put the newly expanded Unibail board on notice that its yet-to-be refashioned rescue strategy was under close scrutiny.

The move came after URW narrowly lost a shareholder vote on Tuesday for an equity raising that would go some way to cutting the €24 billion debt pile associated with its $32 billion purchase of Westfield’s international portfolio in late 2017.

Telecoms billionaire Xavier Niel and former Unibail chief Leon Bressler, who own a combined 5.1 per cent of the company, persuaded just enough investors that a dilutive raising was unnecessary, and the company should instead focus on gradually offloading its US assets.

Their activist group now has three of the expanded URW board’s 12 seats. They say the company does not face any immediate liquidity crisis and can thus find an alternative way forward.

S&P said the fracas between Mr Niel, Mr Bressler and the URW executive team led by CEO Chris Cuvillier had prompted it to lower its assessment of the company’s governance and management from “strong” to “satisfactory”.

The ratings agency also questioned the new board members’ strategy. It said the equity raising had been “an important component” of URW’s rescue plan, as it would have had an “immediate and strong impact on the company’s leverage ratios”.

On the other hand, “uncertainty remains on the timing and likelihood of asset disposals in the strongly subdued retail property investment market, especially in the US”.

S&P said the coronavirus pandemic’s second wave was “likely to dent performance at URW’s shopping centres slightly more, and for a longer period, than we previously anticipated”.

Although the companies’ negotiations to recover deferred rent payments from the European March-May lockdowns were progressing well, S&P said it was unsure how much would be clawed back.

The company might also face a triple-whammy of more retailer bankruptcies, rising vacancies and lower rents, along with “more material property valuation haircuts from appraisers”.

The agency saw a bright spot in the “premium positioning” of URW’s flagship assets, and the portfolio’s scale, diversity and quality.

But S&P still suggested the company might suffer a post-COVID malaise of diminished resilience and cash flow predictability – especially thanks to the rise of ecommerce and the weaker tenant base.

The credit rating could slip further if URW’s debt to debt-plus-equity ratio increased towards 60 per cent, or its debt to EBITDA remained at 15-times or more for an extended period.

“A slower economic recovery than we currently anticipate, affecting retailers in the medium to long term, or continued underperformance relative to peers in Europe, may also lead to similar pressure on credit ratios and could further challenge our view of the company’s business model over the long term,” S&P’s report said.

Mr Cuvillier might still be able to carry out other parts of his €9 billion ‘RESET’ balance-sheet rescue, including asset sales (€4 billion), the payment of dividends in shares instead of cash (€1 billion), and cuts to capital expenditure (€800 million).

The shares were trading at a steady €48.27 on Thursday, below a peak of €57 on Tuesday but about 40 per cent higher than a week earlier.

Australian investors have a stake in Unibail through so-called CHESS Depositary Interests that trade on the Australian Securities Exchange.

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