Colonial deal struck, but hurdles still remain

A deal by Spanish real estate firm Colonial to sell its rental business to Investment Corporation of Dubai (ICD) sent its shares sharply higher on Wednesday but a list of conditions remains before the sale can be done.

ICD and Colonial's two main shareholders issued a statement late on Tuesday laying out the framework of a deal to split the company, restructure its mountainous debt, sell ICD the rental unit for about 1.9 billion euros ($2.9 billion) and relist the rest.

It first needs to reach a binding deal with Colonial's creditor banks led by Goldman Sachs, Eurohypo, Calyon, and Royal Bank of Scotland.

Before the closing of the deal, which may not be until October, even the price of 1.19 euros per share for the rental unit is up for renegotiation, depending on how much debt is spun off with the more cyclical land and development assets.

"The information they've given is as untransparent as the rest of the deal has been. Far from having a firm agreement we still have thousands of conditions before the deal can close," Banesto brokers said in a note to clients.

"In the best of worlds, the minimum timeframe will be five months plus what it takes to launch a full takeover bid," Banesto said, recommending investors sell the stock even though it could have touched its lowest point.

On the market, investors brushed off all the unknowns about the bid and sent the stock up as much as 18 percent.

At 1423 GMT, the shares were up 14.3% at 1.12 euros, erasing a steep fall on Monday when the market doubted any deal would be done. The shares were suspended on Tuesday.

Stock market documents on Wednesday showed Colonial's former chairman Luis Portillo had reduced his stake in the company to 34.2% from 39.7%.

Antonio Lopez, head of analysis at Fortis Bank, valued Colonial's land and development unit at 0.35 euro a share and said the stock should rise towards 1.48 euros now - slightly below its full value given the length of time remaining before the ICD deal might go through.

ICD, an $82 billion fund, has been in talks with Colonial's main shareholders since early February.

An initial proposal to buy the whole company with cash and bonds lapsed without agreement earlier this month and ICD switched its focus on to the rental business which has shopping centres and offices in Barcelona, Paris and London.

Last year, the rental unit made lease revenues of 313.8 million euros - 54% from its 90% stake in Societe Fonciere Lyonnaise - with EBITDA of 288.9 million euros. Colonial valued its assets at 9.2 billion euros.

In its end-of-year results, Colonial valued its land and development assets at 2.5 billion euros but in the deal with ICD they are valued at 2.1 billion euros with 962 million of debt.

The whole company has 9 billion euros of debt, including a 7.2 billion euro syndicated loan.

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