Greg Goodman and his lenders have held their nerve through the global financial crisis, despite the scepticism that was focused on the stability of one of the largest integrated managers of industrial property in the globe.
With a little bit of help from old friends and new – Macquarie Group, once a joint venture partner, lent Goodman Group $300 million of temporary funding in May and a month later China Investment Corporation (CIC) did a near-identical deal to increase the facility size to $485 million – Goodman has been able to buy time ahead of the massive recapitalisation and balance sheet restructuring announced today.
A $1.3 billion general equity raising, a $500 million placement of hybrid securities to CIC and a $200 million joint venture in China with Canada Pension Plan Investment Board (CPPIB) has not only completely remade the Goodman balance sheet but brought two new powerful allies within the Goodman orbit.
Coupled with the extension of $4.1 billion of Goodman’s loan facilities, the restructuring stabilises the group, drops its gearing from about 48 per cent to 27 per cent and pushes out repayments of unfunded debt to May 2012.
Despite raising the best part of $1 billion of equity late last year, Goodman had been regarded as among the more vulnerable of the listed property groups because of the leverage in its structure and the amount of debt scheduled to mature this year and next.
Today’s announcement settles, at least for the next year or two, question marks over the stability of the parent entity. Yet to be resolved are the capital structures for the nine funds within the Goodman structure that it manages and in which it is a major investor.
While about $2.9 billion of debt within those funds has been extended, and covenants around that debt improved, there is a view within the market that the funds themselves need significant injections of equity. Goodman has allocated $250 million from the equity it is raising to support any raising in the downstream entities.
The most significant element of the announcements, beyond the fact of the capital secured, was the cementing of the strategic relationship with CIC and the entering of a joint venture with CPPIB to acquire logistics properties in China.
Those deals bring two very powerful players next to Goodman. CIC, which has more than $US200 billion of assets under management, could end up owning 19.9 per cent of Goodman. CPPIB, with assets under management of more than $110 billion, has been one of the more aggressive and opportunistic of investors during the financial crisis. It is in the midst of a $1.7 billion bid for Macquarie Communications Infrastructure Group.
Partnering with those groups in China and elsewhere – CIC is interested in Goodman’s Asia Pacific and European platforms – will reduce risk and the financing strain of maintaining and developing the business and provide reassurance that the group should have some significant support if it needs more capital in future.
GMG Price at posting:
44.5¢ Sentiment: LT Buy Disclosure: Held
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