France's SIIC 4 legislation introducing a requirement for shareholders to own a maximum of 60% in SIICs from January 2009 is expected to trigger merger and acqusition activity in the country and pave the way for further consolidation in the French real estate sector, according to a new research report issued by Citigroup. The financial institution puts the share of SIIC stock that needs to be refloated by the end of 2008 at EUR 1.9bn - EUR 2bn.
France's SIIC 4 legislation introducing a requirement for shareholders to own a maximum of 60% in SIICs from January 2009 is expected to trigger merger and acqusition activity in the country and pave the way for further consolidation in the French real estate sector, according to a new research report issued by Citigroup. The financial institution puts the share of SIIC stock that needs to be refloated by the end of 2008 at EUR 1.9bn - EUR 2bn.
'This amount of placing activity appears unrealistic in the light of difficult debt and equity markets, and we believe M&As are a likely alternative option,' Citi Investment research said. 'Looking at the 18 companies that do not meet the 60% rule and after removing the ones that can refloat or restructure, we still see a potential EUR 6.8bn of M&A activity.' The group pointed out that firms tipped as most likely to consolidate are those with low Loan to Value ratios, such as Unibail-Rodamco and Icade, or those with shareholders that can provide additional equity, such as Altarea and Fonciere Massena.
'This environment is likely to create some new blue-chip names in the sector,' Citi said. French companies that are due to reduce their stake in SIICs include Caisse des Depots et Consignations in Icade, Spanish shareholders Ribeiro and Soler in Gecina, BNP Paribas in Klepierre, Caisse d’Epargne Group in Eurosic, and Groupama in Silic.
As most SIICs are currently trading at a discount to Net Asset Value, the share sales would result in far bigger losses for shareholders than the penalty they would have to pay if the company does not comply with the 60% rule. However, Citi's research department believes that there are some reasons and opportunities for transactions to go ahead. Stake swaps between some SIICs could be a way to meet the 60% maximum holding rule. 'All-shares combination of SIICs, on a NAV-based parity, with the same type of shareholder could be a way to meet the 60% criteria. With these transactions, shareholders would not crystallise any losses and a portfolio with critical mass could be created,' Citi said.
Since 2002 the total market capitalisation of the French real estate investment trusts has more than quadrupled from EUR 12bn to EUR 51bn.
