Tuesday, 20 March 2018

EMEA Structured Equity Issue: Deutsche Wohnen's €1.3bn ABB and convertible plus buyback

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Terrific triple play

The equity-linked market stuttered throughout the year, but Deutsche Wohnen’s €1.345bn three-part transaction flowed in a seamless manner, despite the complexities inherent in three concurrent bookbuilds. At €800m, the convertible portion of the German property group’s fundraising and liability management exercise in February was the second-largest convertible bond, behind STMicroelectronic’s US$1.5bn dual-tranche deal in June.

By every other measure, it was best in breed. Combining a liability management exercise for outstanding CBs with an accelerated capital increase and new bonds was a first in Europe. The July 2024 CB was the largest in the real estate space in EMEA in 10 years and the largest German CB since 2013. The €545m equity tranche was the largest German primary block since 2016.

Managing three separate but interrelated trades simultaneously and in size required a significant joined-up effort across the syndicate – Deutsche Bank, Goldman Sachs and UBS as global coordinators and joint bookrunners with BNP Paribas. Synchonicity was made harder as the buyback of existing bonds had to be handled completely separately from the new bond and ABB, even though they were interlinked.

Unusually for equity-linked, the deal was launched after the close in order to minimise market risk and simplify execution, having chosen not to pre-sound in advance.

The decision to release strong preliminary results for 2016 at the same time as the deal launch provided initial momentum, bolstered by the banks having an agreed script and a detailed Q&A for the equity and equity-linked sales-forces.

Speedy coverage on the equity sale ensured CB investors moved rapidly to mid-terms allowing for two times coverage at a 0.325% coupon versus a range of 0.20%–0.45%. The 53% premium was the highest ever achieved for a real estate company, and equated to a 63% premium to NAV, with dividend treatment effectively raising that figure further to 65%. A conversion price of €48.5775 was above all-time highs.

The equity book closed with demand of approximately €1.4bn, with pricing of €31.75 coming at an incredibly tight discount of 2.1% given the overall quantum of the fundraising. That the stock ticked up nearly 1% the following day was further testament to faultless execution.

Finishing up at the next day’s close, the two-day buyback of €250m 2020 deep in the money bonds through a reverse Dutch auction had a 99% take-up at a 1.5% premium, the bottom of a 1.5%–1.75% range.

Along with funding the tender, use of proceeds also helped the equity story, financing a future acquisition pipeline and the already-announced purchase of 28 nursing homes for €420.5m.

Despite the size and complexity, Deutsche Wohnen was able to return successfully in September, raising another €800m on a rare eight years and three months tenor alongside a buyback of 2021 CBs.

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