Sdic Power Discussion Threads

[lagosboy] 07/5/2010 12:52

shrubs

I think you last paragraph is key. If the banks believe that SDIC is a flawed model & the Estate of poor quality they will act to protect their loans.

If the institutions feel the same they will not throw good money after bad.

I am sure that SDIC must be doing everything now to try and remedy the cash flow situation.

Unfortunately all the indications are that the portfolio is of a much inferior quality than its peers.

Do you know who selected the original properties purchased, and from whom were they purchased.? The Estate must have been put together very quickly.

With share price at these levels, there must be value if only from a take out bid which must be real possibility if the markets calm.

[davidosh] 07/5/2010 12:27

Spot on scburbs. Now if the big instos here had only cottoned on to what we have been saying here for many months then surely they would have demanded the changes to the cost and conflicts within the structure and fee levels before remotely discussing putting new money in ??

[scburbs] 07/5/2010 12:18

Lagosboy,

You are correct on the cashflow side. That is why disposals themselves are not enough. They need to cut the running costs (in particular the ridiculous 0.85% GAV fee to SYG which is out of line with current market practice) and reduce the vacancies.

These three together would sort out the cash flow issue and would get the company in a reasonable position to raise equity as the share price would have increased. As I have said many times they do not need equity to do these things and the ideal strategy does not change if the share price falls to 10 cents or 1 cent! SYG should co-operate (although I suspect as slowly as possible) as they will lose all of their fee income if SDIC goes under. What they must not do is try and force SDIC to raise equity purely to benefit SYG! Due to the conflicts of interest on the equity I am not confident that they will act in the best interest of SDIC which is pretty obvious!

If it turns out their portfolio is a lot worse that anyone else's and they have numerous book values that are over stated and properties that are structurally vacant due to their quality/location etc. then the company is screwed equity or no equity.

[lagosboy] 07/5/2010 10:59

Davidosh

I guess only time will tell

[davidosh] 07/5/2010 09:51

lagosboy..You stated

'Perhaps JM would like to buy a few properties for his personal portfolio. No doubt that could be agreed at a Board Meeting at which he was prevented from atending so as not to influence the outcome. That seems to be the normal approach, as at SYG when JM injected capital via loans.'

I think I mentioned exactly that in a post a few weeks back. Looks a reasonable solution to me and would still need management changes going forward and the rest as in my plan A above.

[lagosboy] 07/5/2010 09:45

Davidosh

Surely it is no longer a matter of choice but rather a matter of necessity. I fully agree about management, and having been saying so for months that SDIC has been mis-managed.

Put yourself in the banks position, they have just been through the worst credit crisis in history and are desperately seeking to re-build their balance sheets.

They are now faced with the prospect that if they are not stuffed with Sovereign debt themselves then their counterparties will be.

That is hardly a backdrop to the banks being sympathetic to a company that is in breach, has been poorly managed, missed all targets and objectives and as you say, has lost £400m of equity.

As the company does not generate cash, debt repayment default and insolvency are real issues to consider looking forwards.

Selling properties in today's market, (solid co's can't get an IPO away) would only serve to reduce slightly the size of the problem assuming they could be sold at a price above the associated debt and costs to unwind, which itself is highly questionable. However the same inherent problems at SDIC will remain.

SDIC would still not generate any cash from operating activities.

Perhaps JM would like to buy a few properties for his personal portfolio. No doubt that could be agreed at a Board Meeting at which he was prevented from atending so as not to influence the outcome. That seems to be the normal approach, as at SYG when JM injected capital via loans.

Perhaps you and shrubs would be happy with that as it would bring some cash in.


This is now a turnaround situation dependant upon the incumbent institutions willing to back a turnaround plan or some other party injecting capital.

There is always a price for risk & there will be investors ready willing and able to invest at the right price and on the right conditions.

[davidosh] 07/5/2010 09:01

Management changes and agreements with the banks first then after the share price hardens we can look at raising some money if a number of asset sales are not deemed sufficient.

Who in their right mind as an investor would throw money at these guys at this level when nearly £450m of equity has already been reduced to just £35m on assets of around 1.5bn. The property market in Germany has not seen a reduction in value of those assets that is so substantial that a 75% leverage position should have been in such distress. In other words the management of those assets and the costs involved in running them has killed the investment case here. Change that first or the banks can suffer in equal proportion. The large holders must take some blame for not pushing for change much earlier.

[lagosboy] 07/5/2010 08:33

Look, as it is only 1 silo at risk why has the share price collapsed, surely a massive over reaction unless there are bigger and more fundamental problems at SDIC, which we all know is the case.

The 1 silo is just the first manifestation of a much greater structural problem at SDIC as we all know.

Shrubs,on the current course SDIC will approach insolvency as it does produce any cash.

Davidosh, I would like to live in your world and wear a pair of your rose tinted glasses......banks doing deals to help out poor old SDIC, selling properties at premium prices, board changes and now an independent property 'supremo'

I hope you are right but it is all beginning to seem like Alice In Wonderland stuff to me.

Capital is needed and leverage reduced in a meaningful way. Management changes should be the conditions upon which that capital is injected.

[davidosh] 07/5/2010 08:02

It is only one silo at risk at present so why the suggestion that the company is bust ? I prefer to test the banks by negotiating a deal or saying take those properties onto their books then selected sales of the remainder to reduce the leverage but most importantly a complete change in the management structure. A new totally independent property supremo needs to be hired and a number of board changes IMO. There could then be a full review of the best way forward.

[scburbs] 07/5/2010 08:00

Get a grip. How are the banks going to take control? They have no rights to take control. At the very most they can take control of part of the portfolio. It would clearly be in the group's interest to continue to engage with the banks whilst selling properties and working to cut vacancies and costs. If the banks take control of part of the portfolio (which they will not be keen to do) then this would be far better for SDIC shareholders than some ludicrous equity issue which the market is resoundingly rejecting.

[envirovision] 06/5/2010 22:56

im afraid im with lagosboy there, sorry. I would say the time has been missed for a decent placing and having seen whats just happened in the US, i am now thanking my stars my trade got rejected. I cannot see much in the way of an out for private shareholders now.

[lagosboy] 06/5/2010 22:00

Come out of denial Shrubs, it is a matter of finding institutional support now or the banks take control and sell off the properties with one objective.... to recover their loans.

Problem is shrubs, if someone had suggested a Placing at 20 cents you would have put forward the same weak argument, at 15 cents, same again and now at 12 cents the same old argument...its not a good time to raise equity.


SDIC is way short of capital and way over leveraged.

[scburbs] 06/5/2010 19:24

LOL! The lower the share price the more a placing becomes the only option! I am not sure it is even worth responding to that! Check out all the zombies funds whose share prices have fallen so far that raising equity is not an option (e.g Develica Deutschland).

[lagosboy] 06/5/2010 18:43

schrubs

You are simply wrong, your logic is back to front. At these levels a Placing becomes the only option, unless JM has a counterparty up his sleeve to relieve SDIc of some distressed property very quickly....even that I suspect would make no difference to the covenants issue.

Come out of denial and accept to move forward some pain has to be suffered and that is always the biggest risk of being a small shareholder in a big boys game..

bisiboy

I think you need to check the Memo and Articles of association.

[bisiboy] 06/5/2010 17:41

They cant issue equity of the same class by any other means than an open offer
to all shareholders like pspi.
they can however issue convertables or zdp perhaps or combined with integration(internalisation)of speymill/goal.

[scburbs] 06/5/2010 17:12

Well the lower the price falls the harder it is for the Board to issue equity (if they have any understanding at all about the meaning of cost of equity and their fiduciary duties to existing shareholders).

Given the equity route is ruled out (again on the assumption these guys actually know what they are doing - this may prove to be an erroneous assumption!) they will have to sell properties. Therefore, the falling price is good news!

LOL! Not sure I have convinced myself with the logic on that one! (mainly because I don't trust the board not to be foolish enough to issue equity).

[kibes] 06/5/2010 16:38

Glad I am out of this now. But I don't think they will let the banks take over, more likely a rescue placing in which the big guys put in a lot more cash. This is likely to be at a very low level now and involve massive dilution. They've left it too late really. Can't see much more than peanuts left for small shareholders.

[envirovision] 06/5/2010 16:34

nope got rejected, im sure there will be an entry in sub .10Euro tomorrow or monday, no hurry

[envirovision] 06/5/2010 16:31

Put a cheeky bid in, currently in auction lets see if it gets filled.

[envirovision] 06/5/2010 16:25

If it ends up in the banks hands, they will have a fire sale, peanuts left for the shareholders. I guess in this kind of market, people dont like that kind of risk, no matter how slim it is.

[nickcduk] 06/5/2010 16:24

Forced selling and stops triggering.

[loverat] 06/5/2010 16:23

Christ - it's tanking!

[loverat] 06/5/2010 16:21

Why's everone selling?

[lagosboy] 06/5/2010 11:49

fft

I take a different view.

I think German export growth in emerging markets outside is far more important. Greece & Portugal, 2 of your examples would be small markets even in good times.


The demise of the Euro which will go hand in hand with the fate of these countries and decline in their demand for German goods will also serve to make Germany exports ever price competitive in the growing emerging markets.

An inflation issue will occur caused by all the excess liquidity, and eventually debt servicing costs will increase and they will likely increase in my view without any compensating rise in rental prices.


This is exactly what killed the buy to let in UK during the credit crunch, debt servicing cost rose very rapidly leaving rentals ( which actually fell) way behind.


My concern would be a similar outcome (rapid rise in borrowing costs coupled with flat or falling rental yileds), albeit for different reasons.

So whilst there maynot be core inflation in Germany, as many beleive, there will be an incarese in debt servicing costs. Let's hope SDIC hedhge better this time around.

[fft] 06/5/2010 06:16

Germany's GDP growth over the last 7-8 years has been mostly export driven. Without the growth in exports, in many years german GDP growth would have been zero (or lower). retail sales have been flat for years and years.

With Greece predicting -growth for the next few years, and Portugal likely to have the same, with Spain and Italy not far behind, then that is a huge wedge of exports that are likely not to happen. This could easily cause overall German growth to dip into negative territory. Germans will become even more cautious about spending.

For that reason, i dont see how there will be any sizable (if any) increase in German property (or rental) prices. They will batten down the hatches for the next few years as they did in the 2000's. Private discipline over finances is a lot higher than in most (all ?) other countries.