Sdic Power Discussion Threads

[scburbs] 16/6/2010 11:13

Nickduk,

You've decided to add! The reward is undoubtably high, but the risk is now astronomical.

Don't forget the company has been funding service charges costs itself (presumably from the parent's cash). When these costs are recovered the cash will go to the relevant property company rather than the parent and the banks will probably stop it flowing back to the parent (as the intercompany loans will not be permitted to be repaid whilst there is a covenant breach). I would not rely on the central cash having been protecting as well as it should have been and it will also have been reducing by the operational negative cashflow.

Are you sure they are not at risk of covenant breach on the securitised facility?

I take your point in respect of the smaller facilities as these do seem to hold some clear value.

[scburbs] 16/6/2010 11:07

This may well be the case and makes it clear that any equity raising should be a non-runner. Trust is non-existant and it is time to wind the company up and test the valuations. If there is no equity value then so be it, this will serve as an illustration that providing any more equity would have been very very risky.

There is a good chance that the banks will have a similar lack of trust in management and this reduces the chances of an orderly wind up and increases the chances of a fire sale (although the €50m cost of the banks taking control may put them off). In this situation it will be clear that there is no equity value, but still an equity raising would not make sense given the lack of trust (unless JM considers them to be trustworthy and stumps up).

[ydderf] 16/6/2010 11:04

nickduck - given the track record of fee takers and the decision makers here, do you really think that cash in the parent company would ever find its way back to shareholders as opposed to for example, fee takers and others...?

[abc125] 16/6/2010 10:48

Indeed wray does have form. He was the controlling shareholder in Litcomp (LIN) which was bought on 3.5x historic earnings.

There was nothing much minority shareholders could do about it.

[nickcduk] 16/6/2010 10:38

Note the 40m equity is in the silo which was securitized and therefore has no amortisation.

[nickcduk] 16/6/2010 10:34

Having done some more work Ive decided to add some more this morning. Market cap is around 15m. They are likely to have cash at parent company level of that much or slightly more. They have around 8m equity in the smaller silo's where they don't have issues with LTV. The first silo has around 40m equity in it and is safe for the time being from covenant issues. Adding all that up should give you downside protection from around current levels.

[davidosh] 16/6/2010 09:45

envirovision...I am sure you are not too far from reality!

Any structure where fees and bonuses are paid just on valuations and not actual profits earned will always be very risky especially when high levels of leverage involved and a group of non execs based thousands of miles away are the only check and balance !

[envirovision] 16/6/2010 09:33

Well I can only guess, but I would say the entire portfolio is of poor quality and was way overvalued at inception, so whatever happens someone has to carry the cost for this sooner or later and thats the shareholders with a loss of equity and the banks with a haircut.

Don't know how it happened, but you can imagine a bunch of greedy fund managers securing eye watering banking facilities in the days of easy credit and having raised zillions from private equity & stock market, thus turning up at the first big real estate adviser in Germany they could find with a buy what you can please request. Remember their German is not too good and the advisers wet themselves and so do the friends and colleagues of the advisers at the money they have and so lots of unconnected people get rich on a mass feeding frenzy. They then end up completly stitched up with a ton of worthless overpriced poor quality real estate. Remember the fund managers have no interest in any case as they simply have their eyes fixed on eye watering management charges regardless.

Infact they have probably only discovered in the last 12 months themselves the full extent that they were stitched up. I should think they are pretty embarrassed and have no recourse on the situation, but don't quite know how to openly communicate that with the unfortunate shareholders.

Just a thought.

[lagosboy] 15/6/2010 18:08

Afternoon scburbs

You made a very good point earlier & I think its importance has been somewhat overlooked.

In the December 2008 Accounts, vacant units were valued at zero.

The vacancy rate was 14% and total property assets were € 1,455,440, which is the valuation for 86% of the Estate.

That 14% has a maximum potential value of € 236,932,000 (assuming vacancy fell to zero which would never be the case )


In the December 2009 accounts we are told that vacant properties are given a much reduced value.

Firstly I note that the vacancy rate is very similar to 2008 and yet despite the change in valuation the Estate Valaution is only € 1,438,126.

If we assume that vacant propereties were valued at a much reduced value of say 50% of other properties we would expect an uplift in valaution of 50%x1455440/86x14 or something in the region of € 118,466 m to € 1,556,592 in total.

Is the Estate being deliberately undervalued?

What was the precise financial impact to the Estate valuation of the change in valuation policy?

Why did the Etsate valaution fall despite the change in valauation policy which would, all other things being equal, create a valuation uplift?

The accounts disclose that SDIC has adopted an external valuation approach far more conservative than its peers.

Seems to me that the Estate is either undervalued or is of such poor quality that despite the boost from the change in valuation method for vacant properties it has still fallen in value.

Doers anyone have a definitive answer to this ?

[hugepants] 15/6/2010 15:53

Theres a pungent odour emanating from this company. The collapse has been so sudden and its hard to beleive the management didnt have an inkling what was going to happen. But they failed to disclose to shareholders. Scandalous really.

[ydderf] 15/6/2010 15:46

scburbs, what do you like right now, there are pockets of value being thrown up again - maybe

[scburbs] 15/6/2010 14:55

Well played Kibes. Last man out before the collapse (or at least before a couple of them, after all there have been so many!)?

[lagosboy] 15/6/2010 14:32

kibes

I tend to agree, I think the banks will take a haircut in the end.

Its a time game now, savenet € 6 million or so on SYG fees, reduce interest expense with new equity and cut costs where they can and buy time. Not really a compelling investment case, another zombie company with no value for shareholders.

I had my punt and lost at 10 cents, you were spot on.

[kibes] 15/6/2010 11:38

lagosboy - sorry to see how this is turning out. Personally I cannot see how shareholders can expect to get anything back at all, the company will have to be wound up and assets sold at a discount leaving in the best case zero. In the worst case the banks take a big hit on their 1.2 billion euros of loans as well. Still a chance for people to sell at the current price and get something but I expect it will be suspended soon if no action is taken.

[ydderf] 15/6/2010 11:27

5.5p - dear and oh, but not in that order......on the hand maybe that order is appropriate.....

[lagosboy] 10/6/2010 14:56

davidosh

Very interesting, I agree very normal in my experience for management to atleast contact the major intitutional shareholders even just as a matter of courtesy before releasing such an RNS.

I am happy to stand corrected and maybe scrubs is correct and they will not support it.

Without a cash injection SDIC will soon be technically insolvent. What do you think they will do? They must have lost a fortune on this.

[ydderf] 10/6/2010 14:20

plan b

sell and take whats left and buy a few gagfah shares?

plan c

see plan b

this was a bull market float to exploit undiscriminating shareholder appetite for risk, the motive for the float for the promoters and managers was to generate fees (Haven't they done well!)

buying a whole stack of residential properts with heavy borrowings is not a business - there was never anything more to it - and never can be.

the only time it was worth buying is possibly now - the risk is adequately reflected in the share price for the first time since the float...

[lagosboy] 10/6/2010 14:03

scburbs

If a SWAP is closed out prior to it natural expiration there will be a mark to market loss based upon the interest rate differential and term outstanding plus the cost of closing any offsetting transaction that has been entered into by the lender to hedge its SWAP with SDIC plus any other admin and break related costs. You are assuming that offset wil nett to zero and that the banks will be accomodating which is not a given.

That is why you can buy callable swaps.



I think the equity raise is a done deal. It will will used to pay down the debt on the loans in default. Otherwise the the banks would already have appointed a Reciever. That is what banks do when their loan are in breach unless management come up with an acceptable plan for them to agree to a restructure.

That plan is clearly, SYG fee/GOAL internalisation and equity raise. SYG on its own would ot make any difference to the banks position and of course as I have always said new equity comes beore operational restructuring and hopefully performance imporovement and not after.

scburbs, your view may well be correct but you certainly seem to be in the minority on new equity and the your belief that a fire sale will produce a distribution for shareholders.You may call it an orderly winding up, but I suspect the market is a little more savvy than that.

[envirovision] 10/6/2010 13:07

Jeez, did not know! The more I hear, the more fascinating this story becomes.

This is fast becoming one of those "truth is stranger than fiction" stories.

[davidosh] 10/6/2010 13:01

lagosboy... you stated;

I think that the major shareholders ( who will have been sounded out in advacnce of an equity raise) and the banks agree with my view or they would simply put the company into some form of winding up, whether it be voluntary or compulsory and expect to realise some value.


With SDIC it is dangerous to assume anything !!

I can tell you for FACT that two major holders and one being the largest were not consulted ahead of the last RNS whatsoever. I thought it extremely likely that they would have been too. More importantly so did the insto holder but maybe he is simply on the 'to do' list.

[scburbs] 10/6/2010 12:51

Lagosboy,

You seem to view an equity raise as a given? The para below from the announcement led me to believe that they are only just starting to talk to major shareholders about the internalisation agreement. Given the performance I imagine the shareholders may tell them to wind it up. The shareholders are not stupid and if your view is that there is no value even after an equity raise then why would they support it and if the shareholders can not trust the valuations then again why would they support it.

"In relation to the Internalisation, the Board is pleased to announce that it has reached an advanced stage in negotiating heads of terms with Speymill plc ("Heads of Terms") in relation to the termination of the Investment Management Agreement and the acquisition of the Company's investment adviser, GOAL service GmbH ("GOAL"). The Company has commenced the process of consulting with the various relevant stakeholders prior to the Heads of Terms being formally agreed."



In terms of the swaps I understand them very well thanks. Whether the counterparty has hedged or not should not impact on the SDIC swap. The basic NAV of 65 cents included the swaps at their mark to market valuation which is essentially the cost to close at that point in time.

The bad news is that the swap rates have got worse (from SDIC's perspective), the lower swap rates translates to a higher swap liability.




However, if swap rates remainded constant then every day that passes reduces SDIC's swap exposure. This is because the value of the swap liability will be nil on its expiry date and it will tend to nil over the remaining life (this will be impacted by swap rate movements, but it will always reach nil).

This means that in an orderly disposal scenario the latter disposals will not have such an onerous swap liability to offset. Therefore, the strategy that I outlined for an orderly disposal was to sell the properties that can be sold at a premium straight away. This is likely to be fully let low yielding properties in major cities.

They should hold back certain high yielding low vacancy properties and those that can only be sold at a discount until the end of the process. The high yielders are being retained so they can be operating cashflow neutral or close to it (assuming fees have been slashed) during the process. When these properties are sold later on then selling them at a discount would be less of an issue as SDIC would have released part of the swap liability by this stage. If they can use this c.2 year period to reduce vacancy in the meantime then they may achieve a stronger valuation (although it is unclear exactly how this property is valued at the moment).