Investors eye Kiwi Income's 'unexpected' capital raising

Craig Tyson. Photo / Dean Purcell

Institutional investors are eyeing Kiwi Income Property Trust's proposed notes issue to raise up to $150 million.

Craig Tyson, investment manager of ING NZ, said the move was "a little unexpected".

He wanted to know if the money would be used to repay debt or for development work.

"This is really just Kiwi extending or replacing its existing mandatory convertible notes issue and it behoves all the listed property trusts not to rely on bank debt to the extent they have," he said.

ING's investment in Kiwi is in the trust, not notes, Tyson said.

Shane Solly of Mint Asset Management said the deal made sense although he had put a number of questions to management.

But the deal seemed logical and was about restructuring debt, particularly given that Kiwi's existing NZX notes expired in June, he said.

"One of the things most borrowers are trying to do is extend the length of their borrowing. This business is run with a very conservative approach to managing financial affairs and while I'm not being a poster boy for it, it does make sense," Solly said.

Kiwi said yesterday it was considering raising $100 million to $150 million via unsecured subordinated mandatory convertible notes.

The notes are expected to have terms similar to the trust's existing notes issue, including a five-year maturity term, ranking as unsecured subordinated obligations of the trust up until conversion.

Kiwi's convertible notes, listed separately on the NZX, convert to units in the trust in June. Those notes were issued in 2005 and have a market capitalisation of $142 million, trading yesterday at 99c to $1.

The proceeds of the planned offer will initially be used to reduce net bank debt and may be applied to new investment opportunities.

The trust owns real estate valued at $1.8 billion.

In August, it had an $800 million debt facility with ANZ, BNZ, CBA and Westpac but was yet to draw $166 million of that. Chris Gudgeon, chief executive of Kiwi's manager, said the trust was conservatively geared and handling the downturn.