The CPI Property Group Group made an unusual transaction. She bought back a 49 % stake in the Warsaw office real estate, which was sold last July by the British company Sona Asset Management for 250 million euros (6.1 billion crowns). She issued hybrid bonds in the British pounds worth £ 300 million to finance the repurchase, which is approximately CZK 8.4 billion at the current course.
The reason for the transaction is that the CPI Property Group did not receive a higher credit rating, as it originally hoped. Vít’s group expected last year’s investment of Son to be recognized by rating agencies as a strengthening of its own capital. But that didn’t happen. “We expected a more favorable approach of rating agencies to this investment, but they eventually considered it as a debt, despite the fact that according to IFRS standards it was kept as a capital item,” CPI spokesman Jakub Velen said.
What are hybrid bonds
- Hybrid bonds are a financial tool that combines debt and capital properties. Their main advantage is that the rating agencies can recognize them entirely or partly as their own capital, which improves the ratio of the company’s debt.
- In the case of CPI it is a so -called eternal bond without a specified due date. The first date on which Bond can repay, is set for October 2030. If the CPI does not do so, the coupon will increase in January 2031. Further increase in interest is scheduled for January 2046.
- The bond carries the coupon 8.875 percent and the total return was set at 10 percent per year (the total return includes not only coupon payments, but also the difference between the purchase price and the nominal value. In this case, the yield (10 %) is higher than the coupon (8.875 %). According to CreditSights analysts, this is an attractive investment. In the British High -Transport Bond Index, we find only 13 instruments with a yield of over 10 percent.
- Moody’s acknowledges these hybrid bonds as 100 % capital, if the CPI PG has a rating BA1 or lower, S&P will then admit a 50 % capital credit. The company currently has a rating BA1/BB+ with a negative view.
The transaction, which was supposed to improve the debt indicators watched by rating agencies, was not successful. Yet, according to Velen, the investment of London Sona Asset Management helped Vítk’s group to return to the capital markets and strengthening liquidity.
The CPI Property Group, after controlling the Austrian Immofinanz property group in 2022, is struggling with high debt. Since then, the central banks have begun to raise interest rates and for the Vít Group is a large burden on repayment. CPI PG therefore sells real estate to reduce the debt. However, the debt still accounts for 49.4 percent of the net value of assets that amount to EUR 20.3 billion (almost CZK 500 billion).
Hybrid bond emissions in pounds were very successful for CPI PG. The volume of orders reached £ 1.3 billion, which represents more than four times the interest exceeding the offer. “It included a wide range of orders from renowned asset managers,” Velen said.
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