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Investing.com — Tag Immobilien (ETR:TEGG) stock fell as much as 10% to its lowest in eight years on Friday, after the troubled German real estate company announced it will seek to raise €200 million ($204 million) with a deeply discounted capital increase to rescue its investment-grade credit rating.
TAG said existing shareholders will have preferential rights to buy new stock at a price of €6.90, barely half of Thursday’s closing price of €11.04
TAG said the money would be the ‘heart’ of a broader financing package needed to refinance the €650 million bridge financing it took for the acquisition of Polish-based developer ROBYG at the end of last year.
TAG stock has plummeted this year as the end of a decade of rock-bottom interest rates in Europe has threatened to erode its profitability. Moody’s) Investor Service put TAG’s long-term debt under review for a downgrade from the current Baa3 level – just one notch above junk status – on Monday. Moody’s had warned that TAG wouldn’t be able to service all of its debt from existing liquidity sources, noting that it has more than €1 billion in debt maturing between now and the end of 2023.
TAG said on Friday that in addition to the proceeds from the share issue, it intends to sell €300 million worth of assets to fund the bridge loan repayment. The remaining €150 million needed will come from existing liquidity sources.
TAG’s troubles are symptomatic of a broader industry problem. Companies in Germany, in particular, have been able to borrow at extraordinarily low rates ever since the financial stress from the Eurozone debt crisis started to ease in 2012. That has supported a massive increase in property prices which has allowed it to present a picture of balance sheet strength. However. with the European Central Bank warning that it will raise its key rates by at least half a point by the end of summer, the days of easy money are coming to an end. Borrowers such as TAG are now having to refinance cheap debt at higher rates, at a time when the cost of living crisis is making it harder for tenants to make rent. Meanwhile, Moody’s (NYSE:MCO) said it doesn’t expect the value of its German property portfolio to rise much more.
ROBYG faces similar problems, having suffered an even steeper rise in its local borrowing costs as the National Bank of Poland has tightened monetary policy aggressively over the last year. The NBP raised its key rate by another 50 basis points to 6.50% on Thursday.
