Cromwell Property Group, the Australian property fund manager, sought to raise up to €200 million through a convertible bond issue on Tuesday to help fund the acquisition of a European property group.
The euro-denominated convertible has a five-year maturity with no investor put. It offers a 1.875% to 2.375% yield-to-maturity and converts into Cromwell shares at a 5% to 10% premium to the January 23 closing price of A$1.07, according to a term sheet seen by FinanceAsia.
Proceeds will go towards Cromwell's €145 million acquisition of Valad Europe, a European property investments manager with €5.3 billion in assets under management.
The base offering size totaled €150 million with an upsize option of an additional €50 million. The annual coupon rate ranged between 1.875% to 2.375% and is payable semi-annually, the term sheet said. Bank of America Merrill Lynch was the sole bank on the deal.
"[Cromwell] is interesting because [it has a] very high stock dividend [and] very low volatility," noted one equity-linked banker not on the deal.
According to the ASX website, shares in Cromwell currently have an annual dividend yield of 7.24%.
The deal finally closed at €150 million, with the conversion price being set at A$1.15 per unit, according to a term sheet. This represented a conversion premium of 7.5% above the January 23 price of A$1.07 per unit.
Books were well oversubscribed, an even split between hedge fund and outright investors. The geographic divide was also 50/50 between Asian and European investors.
The strong hedge fund participation is noteworthy, a source close to the deal said, given Cromwell is not seen as a typical hedge fund play. “It’s a high yielding, low-volatility real estate company,” the source said. “It’s a safe play and low-risk investment, so not a traditional hedge fund play.”
There was enough demand to exercise the upsize option of €50 million, but Cromwell had raised the amount necessary for the acquisition, which cost €145 million, and therefore decided to stick with €150 million, the source said.
Cromwell will purchase Valad Europe from private equity giant Blackstone, as well as from Valad senior management. The acquisition is subject to approval from authorities in the UK and Guernsey.
Valad Europe was originally part of Australia-listed Valad Property Group until it was acquired by Blackstone in 2011. Following Blackstone's acquisition, it separated the European business and renamed it as Valad Europe.
The acquisition will boost Cromwell's own assets under management to $9 billion and will give the company a "property funds management platform with scale across a number of geographies and sectors," Paul Weightman, Cromwell's CEO, said in a statement.
Anthony Myers, head of real estate Europe at Blackstone, noted that Valad Europe has been a successful investment for the private equity group.