Cost savings from Octodec-Premium merger
The merger of Octodec Investments and Premium Properties is likely to be credit positive thanks to the benefits of scale and diversification, says Eyal Shevel, Head of the Corporate Sector at Global Credit Ratings (GCR).
Jeffrey Wapnick, Managing Director of Octodec and Premium says that vacancy levels are low and the business strong. Image: Jewish Business News
Octodec and Premium's management said one of the expected gains from the merger would be cost savings, particularly finance costs. The companies, which focus mainly on Gauteng's inner city markets, are sister funds under the same management.
The companies announced the terms of their merger, which will result in Octodec buying all the issued linked units of Premium in exchange for Octodec shares, subject to conditions.
Shevel said GCR, which rates Premium, viewed increased company size as a positive factor when it comes to ratings. One concern about Premium had been its heavy concentration on Pretoria's inner city market, though Octodec's portfolio would provide diversification.
"The merger could improve Premium's credit rating, which in turn could allow the companies to negotiate better financing costs," Shevel said.
Better interest rates
Premium said in May the interest rate of 58.3% of its borrowings had been fixed with expiry dates in 2017 and 2018. At the end of February, the weighted average annual cost of debt was 8.21%.
Premium increased its debt capital market issuance to R775m, or 40.7% of its borrowings in its year ended February. In August last year, GCR upgraded the long-term rating of Premium to A-minus.
In terms of the merger agreement, Octodec will offer 88.5 of its shares in exchange for every 100 Premium linked units held. The deal would result in Premium and residential-focused IPS, which is owned 50% each by Premium and Octodec, becoming wholly owned subsidiaries of Octodec.
Jeffrey Wapnick, the Managing Director of both Octodec and Premium, said the market capitalisation of the new entity was expected to be slightly more than R5bn, with assets under management of R10bn.
The deal would give Premium additional exposure to the retail sector, and Octodec more exposure to residential property.
Wapnick said despite a worsening economic environment, the companies' inner city property portfolios were holding their own while vacancies in the residential portfolio were still low and arrears very much under control. Prime retail properties were performing well.
Source: Business Day via I-Net Bridge
Source: I-Net Bridge
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