GTC plan for Warsaw share issue and acquisitions drive spooks investors

By bne IntelliNews September 16, 2014

Tim Gosling in Prague -

 

Real estate developer Global Trade Centre saw its shares dive on the Warsaw Stock Exchange on September 15 as it unveiled a new rights issue planned to drive acquisitions. The slump reflects the huge size of the prospective issue, and concern over the risks hanging over the property markets in Emerging Europe.

The shares slid 8.6% on the WSE to PLN5.3 in mid-morning - it's lowest level since mid-August 2012 - on the back of an announcement that it will issue up to 140m new shares in a bid to raise capital "to be used to finance acquisitions of yielding properties, where GTC will unlock value added potential," as well as "organic growth".

Trading volumes were more than six times the daily three-month average, according to Bloomberg. The price fall triggered what appeared to be opportunist buying in the afternoon to trim the loss to 3.28% by the close. The WIG 30 index fell 0.15%.

The size of the issue - it represents a 43% increase in the volume of outstanding shares acceding to Bloomberg - and the lack of detail on the acquisition plan clearly unsettled investors already spooked by the company's recent struggles. GTC says in the statement it has "completed its restructuring phase and achieved good and stable operating results," before announcing it has already "carefully selected a number of potential acquisition targets in Poland and capital cities in the Central and Eastern Europe (CEE) and Southeast Europe (SEE) region.

"The CEE and SEE markets are now offering attractive investment opportunities arising from the high yield spread in a low interest rate environment allowing for accretive growth. Rents in many capital cities in the region are at their historical lows. The combination of these factors creates investment opportunities for GTC," the statement reads. A shareholders' meeting scheduled for October 13 will vote on the plan.

Bottom

Despite the ongoing global economic crisis, coming in the wake of a credit and real estate boom, asset sales have not happened on a large scale in CEE. In large part that's due to the depth of the crisis. Despite tightened funding from Western parent banks - as well as spiking bad loans in SEE - local banks have remained accommodative to borrowers in general; they'd likely struggle to reap value through the sale of assets underlying loans should they enforce terms.

Meanwhile, the economic recovery in the Eurozone remains sluggish, casting doubt on the prospects for the region's real estate markets, given CEE and SEE's heavy dependence on the single currency area. The Ukraine crisis also continues to hit confidence. That puts a significant question mark over the office and retail sectors in which GTC says it will concentrate.

Nevertheless, the company insists the market has now hit bottom. "The CEE and SEE markets are now offering attractive investment opportunities arising from the high yield spread in a low interest rate environment allowing for accretive growth. Rents in many capital cities in the region are at their historical lows," CEO Thomas Kurzmann says in the statement.

"We see acquisition opportunities that can be translated into highly accretive growth at GTC. In order to take advantage of these opportunities GTC needs to raise equity. We believe the execution of our growth strategy will change GTC's profile into a cash generating company in the mid-term," claims GTC Chairman Alexander Hesse. However, especially with the US treasury continuing to wind in its asset-buying programme, investors appear wary of plugging their cash into a longer-term strategy that leans on low interest rates.

The dreary trading on the back of the announcement only exasperated a poor run for GTC shares, which have now lost 16.67% since August 20, when the company issued poor second quarter results. It said the bulk of the €70.1m loss it chalked up was due to revaluation of properties due to a decline in expected rental values and lack of investor interest, with assets in Croatia and Romania doing the most damage.

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