ICG-Longbow mulls further capital raises after listing UK debt fund

London-based ICG-Longbow, a 51% subsidiary of Intermediate Capital Group, is targeting an 6% income yield, ICG-Longbow chairman David Hunter told PropertyEU. ‘Asset-wise, we’re not ruling anything out, really, as long as it encompasses commercial property. We will invest nationwide in a diversified manner but we don’t have a set allocation by asset class.’

ICB-Longbow announced last week that it is pressing ahead with plans to float a new investment company, ICG-Longbow Senior Secured UK Property Debt Investments Ltd, on the London Stock Exchange in mid-December. The company is aiming to raise at least £100 mln (€124 mln) from the IPO and is capping it at £250 mln. The new company will invest in senior UK commercial property debt by making new individual loans with maximum LTVs of 65%.

By offering loans with maximum LTVs of 65%, the new firm is focusing ‘on the safe end of the loan stack’, Hunter said. ‘Anyone borrowing from us needs at least 35% in equity, so we won’t really be exposed to any small fall in UK values,’ he added.

ICG-Longbow is hoping to be fully invested within six-to-nine months of the launch in December, Hunter said. If market conditions stay much the same – with a shortage of available bank debt – the company won’t rule out further capital raises, he added. Investec Bank has been appointed as advisor and sole bookrunner.

Share offerings are gathering pace again in the UK. In mid-November, London-based property and investment group Great Portland Estates placed 31.25 million new ordinary shares to fund acquisitions, representing almost 10% of the current issued share capital. The proceeds will be used to acquire properties in central London, particularly the West End. Following the placement, Great Portland Estates expects to have around £400 mln in cash and undrawn credit facilities, it said in a statement.

Nonetheless, it is an extremely challenging environment in which to launch an IPO. Earlier last week, Swiss residential developer Peach Property Group cancelled the IPO of its Frankfurt-based subsidiary, just one day before the company was due to float.

However, senior debt lending vehicles are becoming increasingly popular, Graham Barnes, senior director in CBRE’s real estate finance team in London, told PropertyEU: ‘In any conversation about the property universe today, invariably someone will say that the best value is to be had in senior debt lending, especially compared to spreads in the bond world. The projected return is similar to real estate income in the 1980s - Longbow’s projected income yield sounds about right,’ he said.

As such, Barnes believes that private wealth management companies, as well as investors from the income fund space, might be interested in Longbow’s offering. ‘Sentiment has improved massively in the UK this year and it’s now flowing into real estate market activity, and that goes for the IPO space, too,’ he said.