Intu the storm

The recent traffic congestion following the opening of the Malaga Designer Outlet next to the existing Plaza Mayor complex with ever more retail units presents yet another challenge to Intu, the UK company behind the new commercial and leisure development planned for Torremolinos. Intu plans to invest 800 million euros in the site next to the Congress Centre however, like the Designer Outlet, the local authorities are insisting that the building licence will be dependent on finishing promised improvements to the access roads, including the adjacent A7. After 10 years of administrative procedures the green light in order to commence the works remains in the air pending compliance with the conditions imposed by Torremolinos town hall.

These challenges which Intu is facing in Torremolinos pale into insignificance with the problems Intu is having to confront in the UK. As the owner of 14 shopping centres ,of which the Lakeside in Essex and the Trafford Centre near Manchester are the biggest, the embattled company is being subjected to attacks on several fronts. Following a series of insolvencies among tenants such as Debenhams and Arcadia, brought on by steep rises in business rates and the minimum wage along with the rise of online shopping, mean that the company is under serious financial pressure as its tenants struggle to keep their businesses afloat despite soaring costs and declining footfall.

As a result of the above, the Intu share price has plummeted to 12 pence, valuing the company at 163 million pounds, a mere fraction of the 8.4 billion pounds its assets are valued in its books. It is worth noting that in 2010 the company rejected a takeover bid from another property company worth 425 pence per share or three billion pounds. With its equity all but worthless, another problem is that its balance sheet is loaded with 4.7 billion pounds of debt. In an attempt to extricate itself from this untenable situation the company announced its intention to raise a billion pounds of emergency cash by means of a rights issue. Unfortunately the bombed-out share price is not propitious for a rights issue since the price offered to existing shareholders and those underwriting the issue has to be at a discount in order to make it attractive, and the current share price leaves little room for manoeuvre.

It remains to be seen whether the three biggest shareholders who speak for 50% of the share capital will in the end support the rights issue. A muted reaction could mean that the fate of the company may be decided by the lenders of the debt through forcing a quick-fire asset sale or by converting their debt into equity unless a deep-pocketed white knight emerges to rescue the company.

It can be seen that the problems that have been and are currently being experienced by Intu in Spain bear no relation to the existential crisis facing the company in the UK and only time will tell how it all works out.