The country’s largest shopping mall owner, Westfield-operator Scentre, is preparing to launch a hybrid debt raising, worth as much as $US2 billion ($2.7 billion) to shore up a balance sheet battered by devaluations as a result of the pandemic slowdown.
Scentre’s move comes after the shopping centre giant wrote down the value of its mall portfolio by more than $4 billion at its interim result last month, pushing it sharply into the red.
“We have mandated a number of banks to arrange a series of fixed income investor calls,” a Scentre spokeswoman said on Tuesday following reports the property giant had tapped banks to work on the raising. UBS has been appointed the sole structuring adviser.
Scentre’s stock surged 11??, or 5.2 per cent, to close at $2.21 higher as investors took comfort that the property trust, led by Peter Allen, had not issued a dilutive equity raising.
The subordinated notes, a form of hybrid debt, would be issued in the US and Europe and have at least 6 years non-call components, according to a JPMorgan note sent to clients on Tuesday.
A hybrid has characteristics of both debt and equity. According to JPMorgan, Scentre would receive 50 per cent equity credit from the rating agencies and 100 per cent equity credit for debt covenant calculations.
Scentre has not disclosed the scale of the proposed issuance but it could be as much as $US1.5 billion to $US2 billion, depending on demand, according to JPMorgan.
“We expect the market to view this favourably given the uncertainty of whether Scentre’s balance sheet could withstand material further devaluations,” the analysts wrote.
Scentre is not facing issues on its liquidity or its debt covenants. It has a high 65 per cent loan-to-valuation ratio covenant.
“Gearing, however, would get to the mid to high 40 per cent range if its assets are devalued a further 15-20 per cent,” the JPMorgan analysts wrote.
“We assume this is the case and it would leave Scentre gearing well above its 30-40 per cent target range. The hybrid issue would alleviate a lot of this concern, presuming it is treated as equity in gearing calculations.”