Phoenix Fund Set to List in Bermuda

Everything is going to plan for the new Global Phoenix Property Investments fund designed to take advantage of the huge discount arbitrage that exists in certain listed property markets internationally.

Towards the end of April the prospectus for the IPO was approved and the date for listing on the Bermuda Stock Exchange had been set for the 26th June.

This means that the capital raising effort which kicked off in March with pre-marketing can now go into top gear. The targeted capital to be raised on the IPO is US$200-million.

Mike Flax, who initiated the fund and who is Executive Director of Madison (which is now being merged with Redefine and Apex-Hi), said that the response in recent weeks, from individuals and institutions around the world, had been excellent.

“The new fund has attracted considerable interest and we expect the capital inflows in anticipation of the listing to be very satisfactory.”

Three factors, he added, are driving the build-up of demand. These are:

  • the current strength of the rand, which makes it more attractive for South African investors using asset swap capacity to diversify into the US$;
  • the mini-rally in international property stocks which are now factoring in likely improvements in the world economy, set to take place a year or so from now.
    “Among some players there is now a realisation that they might miss the boat if they do not invest soon”, said Flax;
  • the reputation of the six-man Phoenix directorate, which has on its board such high profile men Marc Wainer, Wolf Cesman and himself, whose track record in SA property is ‘unrivalled’. Phoenix's Chairman, currently visiting South Africa, is Jim Shankland. Flax said that Shankland, who is UK-based, is a former Chairman of the Royal Institution of Chartered Surveyors of Scotland and has the necessary experience to guide Phoenix towards suitable acquisitions.

Capital inflows to the fund, said Flax, are also being boosted by a growing realisation that the timing of the Phoenix launch is spot-on and by an increasing appreciation of the company's strategic plan.

Asked to elaborate on these statements, Flax said that a fair number of solid international property companies are now trading at prices that are half of their net asset values and prices 80% below their previous highs achieved in 2007. In many cases, he said, these companies are sound, well-managed businesses with carefully selected portfolios.

“The only reason for their current low values,” he said “is that global economic problems have caused their properties to be radically devalued. When this happens, there is a strong likelihood that they will breach the banks' loan-to-value covenants on their debt, which gives the banks the opportunity to execute against these properties or alternatively trap all income from rentals and other sources so as to improve their own balance sheets by forcing capital repayment. This, in turn, leads to nil dividend yields and severe falls in the share price.”

The Phoenix team, said Flax, will invest in conservative, low-risk property companies, most of which will be in the UK or Australia and are currently in the predicament described above but are still, in Phoenix’s opinion, performing well and holding carefully selected commercial and industrial properties.

Most such companies, he added, are listed on their local stock exchanges.

Phoenix would not seek to control the companies they buy into but would always acquire a large enough share to block a rival takeover or asset-stripping exercises by vulture companies.

In helping the companies they buy into, Phoenix, said Flax, would “play to their acknowledged strengths” which include an understanding of the structuring of property companies, picking and putting in place sound management and extracting maximum value from property portfolios.

Phoenix’s participation, he said, could take the form of a straight cash injection via a share purchase, underwriting rights issues or buying some of the debt notes and in turn converting debt for common equity.

Listed property companies on the UK and Australian exchanges, said Flax, are now showing the first signs of a recovery.

“This does not mean that these companies are yet out of the woods but that investors see them being in a far better position in a year or so. It is acknowledged worldwide that stock exchanges move up - or down - a year or more ahead of actual events on the ground,” said Flax. “Right now worldwide exchanges are beginning to factor in an improvement in the property sector from mid- 2 010. There could not therefore be a better time to buy strategic stakes in small to medium cap overseas property stocks than now.”

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