Aspen entitlement offer falls $5m short

17/08/2009 - 13:05

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Perth-based property fund manager Aspen Group has raised $10 million from investors in its embattled Diversified Property Fund, leaving the company to raise a further $5 million to meet its minimum loan obligations.

Aspen entitlement offer falls $5m short

Perth-based property fund manager Aspen Group has raised $10 million from investors in its embattled Diversified Property Fund, leaving the company to raise a further $5 million to meet its minimum loan obligations.

Aspen, which hoped to raise up to $25 million, will now target external investors in a bid to raise the required minimum of $15 million to avoid a forced sale of property assets.

The fund launched its entitlement offer in June after getting caught with a highly-geared portfolio as the credit crunch took hold, which led to the fund breaking its loan covenants with NAB.

Aspen has sold two properties for a combined $18 million to be used to pay-down debt.

The fund is one of several around the country to have run into trouble, with Melbourne-based Orchard Funds Management recently calling in KPMG to help restructure its troubled property portfolios.

In an announcement to the ASX, Aspen said about 40 per cent of the fund's existing unitholders took part in the entitlement offer.

Those who could not or would not participate have had their investment severely diluted, which has led to a move by dissident unitholders to approach ASIC in an effort to force Aspen to pursue other means of salvaging the fund.

Aspen had hoped to raise at least $15 million from existing unitholders.

Unit-holders previously invested more than $60 million in the product, which owns six office buildings, two retail sites, and four industrial complexes across Australia.

The fund's finance facility obligation falls due on October 1.

 

The announcement is below:

Aspen Group wishes to provide an update on the progress towards meeting the finance facility obligations of the Aspen Diversified Property Fund (the "Fund").

Approximately 85% of the $33 million in required funds has been raised:

- Approximately $10 million of the $15 million minimum equity component has been raised through existing unitholders. The Manager is currently in discussions with several high net worth and institutional investors to secure the remaining equity portion.

- The required gross asset sales of $18 million has been achieved with the sale of the Riseley Corporate Centre and Champion Drive Shopping Centre.

The Manager looks forward to finalising the remaining equity requirement in advance of its finance facility obligation deadline of 1 October 2009, with applications from its existing unitholders still being received.

Background

The Fund is an unlisted Fund managed by Aspen Funds Management Limited (the "Manager"), a subsidiary of Aspen Group Limited.

Due to a significant fall in valuation of the Fund's property portfolio, the Fund was in potential breach of its bank Loan to Value Ratio (LVR) covenant. AFM has successfully negotiated a new bank facility that provided time for the Fund to reduce both its overall debt levels, but more importantly, reduce its current LVR.

The Fund is required under its revised financing facilities to undertake a minimum equity raising of $15 million and secure asset sales of $18 million to meet its debt reduction and LVR requirements.

The $15 million minimum level has been structured to ensure the Fund meets its revised LVR covenant obligations, is sensible in light of the weak property market and importantly provides a reasonable buffer for any potential future breach should market conditions deteriorate further.

The equity raising was structured as a pro-rata Entitlements Offer ("Offer") to allow all existing unitholders the opportunity to participate. The Offer was priced in accordance with the Fund's constitution and reflected the estimated net realisable value of the assets in the current market conditions.

Existing unitholders were offered the first opportunity to participate through a priority offer. Recognising the difficult market conditions, the Offer also included an external offer if required, to assist in meeting any shortfall following closure of the priority offer.

This course of action has allowed some retention of equity value, with the potential for future equity growth as property market conditions improve. As part of the analysis undertaken by the Manager it was clear that without an equity raising the majority of the Fund's assets would likely be required to be sold to meet the finance facility LVR requirements.

Such a course of action, given the current weak state of property markets, would in the Manager's view have likely resulted in the loss of all equity in the Fund.

The Manager has been very transparent with the Fund's unitholders, including holding several investor presentations in each capital city. The feedback from these investor presentations was largely very understanding and supportive of the Fund's recommended strategy, which has translated into approximately 40% of the Fund's existing unitholders participating in the Offer to date.

 

 

 

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