Paying £12m to raise £500m is not the worst example of being taken to the cleaners by your investment banks in a rights issue. But Intu, the firm formerly known as Capital Shopping Centres, could surely have done far better for its shareholders.
Look at the discount to the previous market price – it's a colossal 42.5%, or 36.5% when one adjusts for the rights issue itself. The discount to published net asset value is even greater at 53%. Where is the underwriting risk there? This is a company that owns UK shopping centres, for heaven's sake. The value of the assets is not about to evaporate in the space of a month.
The bankers' and advisers' fees look even steeper when you consider that two of Intu's major shareholders – John Whittaker's Peel Group and the Gordon family – have committed up-front to subscribe for the new shares. That's 24% in the bag already. The rate for underwriting those shares is, thankfully, tiny. But the implication is that the City's standard princely rates apply on the rest of the fund-raising. It's a nonsense: deeply discounted rights issues should imply deeply-discounted underwriting fees.
The £500m – or, rather, £488m – will part-fund the £868m purchase of three assets, including a half-share of the Merry Hill shopping centre in Dudley and 100% of Westfield Derby. The transaction is a "rare and attractive opportunity," according to Intu chief executive David Fischel.
Not everybody is convinced. John Cahill, analyst at Oriel Securities, says: "Management had said it would finance acquisitions via a rights issue and debt at its recent full-year results, but we had not expected this to be so heavily discounted to acquire such an anaemic rental stream."
He's definitely right about the discount.
