European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Unibail-Rodamco-Westfield Looming Rights Issue

Event-Driven

<a href="https://www.smartkarma.com/entities/hammerson-plc" target="_blank" data-smartkarma-citation="entities:21974:1" rel="noopener">Hammerson PLC (HMSO LN)</a> announced on 6 August a fully covered highly dilutive <a href="https://www.hammersontransaction.com/system/files/2020/launch-announcement.pdf" target="_blank" rel="noopener">rights issue</a> combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.
<ul>
<li>Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.</li>
<li>Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.</li>
<li>Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).</li>
</ul>
The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed <a href="https://www.smartkarma.com/entities/british-land-co-plc-the" target="_blank" data-smartkarma-citation="entities:21839:1" rel="noopener">British Land Co (BLND LN)</a> by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Hammerson PLC (HMSO LN) announced on 6 August a fully covered highly dilutive rights issue combined with a sale of VIA Outlets; both should raise £825 mn gross proceeds (c. £794 mn net) to recapitalise the business.

Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 billion on a pro-forma basis as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis.
Those £794 mn net proceeds seem somewhat far from what's needed to restore Hammerson to a more comfortable leverage, another £500 mn, in my view.
Hammerson reported a £1.09 bn loss in H1 2020 (vs. a £319 mn loss in H1 2019).

The capital increase is highly dilutive. Considering the share consolidation, the UK issue price of 15p represents a discount of 94.6% to the closing price of 279.80 p on 5 August, and a 41.4% discount to the TERP of 25.59 p (by reference to the LSE closing price on 5 August).
Shares closed at 47p on 7 August, 15% below the closing price prior to the announcement.
Following completion of both the rights issue and the disposal of VIA, Hammerson's net debt would reduce to £2.2 bn pro-forma (57% gearing) as at 30 June 2020 and LTV would fall to 41.7% on a fully proportionally consolidated basis (vs. a dangerously high 51%). The focus, according to Hammerson, remains on further disposals to reduce debt over the medium term.
From a covenant perspective, Hammerson's announcements buy some time and allow trading and capex to continue in the short term. But I have already pointed out that Moody's has placed the rating under review, and that a downgrade to high yield is not unlikely (with higher financing costs). This and the refinancing profile should put pressure on Hammerson.
It is also worth considering that these businesses have been the growth drivers for Hammerson over the last years, and disposing of them is akin to selling the family silver.
I see further downside in Hammerson. The analyst consensus on S&amp;P Market Intelligence is underperform, and I also recommend a straight short in Hammerson.
Pair trade. Over the last two years, Hammerson has underperformed British Land Co (BLND LN) by a lot. The S&amp;P Market Intelligence analyst consensus on British Land is neutral BLND. Looking at the charts it seems that Hammersons could outperform British Land in the short term, if it does, would be a good time to short Hammersons and buy British Land on a bounce in the price ratio.

Hammerson

Hammerson's Rescue Rights Issue