Deutsche Bank, Goldman now unwitting new Gagfah shareholders

It’s not really been a good month for Germany property companies tapping the capital markets. Or perhaps it’s fairer to say that the appetite is still there for German residential exposure, but bookrunners are finding out that the market has become much more price-sensitive and is not taking kindly to automatic assumptions that their thirst can be slaked at any price.

First, the Deutsche Annington IPO was initially pulled, then hastily re-cobbled together in a reduced format to drag it kicking and screaming over the finishing line. Then rival Gagfah announced a capital raising to cut debt and fund investment, while placing a chunk of stock from majority owner Fortress with institutional investors – a move which also backfired on Gagfah’s backers when enthusiasm for the €354m offering was less than anticipated.

The Gagfah transaction involved offering 40m shares to institutional investors through an accelerated book-building process (20m secondary shares from Fortress Investments, 9.5m primary shares and 10.5m of treasury stock) and was based on the hope that the liquidity event – the deal represented around 150 days’ average trading volume – would attract demand.

Fortress was divesting its 20m shares as part of its own plan to reduce its shareholding from a 60.8% stake to 48.8%, and planned to raise €176m for its own book. Gagfah planned to use the proceeds for investment in maintenance and to improve its capital structure by paying down loans, the company said.

Things didn’t quite go according to plan. Both book-runners Deutsche Bank and Goldman Sachs have been unwittingly left with stakes in Gagfah worth about €120m each after they failed to place more than a quarter of the shares with institutions. A third book-runner, Unicredit/Kepler, had a share of the underwriting below the 5% disclosure threshold. As a result, Deutsche Bank now owns 6.42% of Gagfah, while Goldman Sachs owns 6.32%.

The story from insider circles was that investors felt they were being rushed into getting comfortable with Gagfah’s equity story, particularly in the light of Gagfah’s ongoing restructuring and the arrival of Thomas Zinnöcker as the new CEO from Berlin-listed housing group GSW Immobilien AG in April. The oversupply of stock suddenly in the market, including the Annington IPO and various other German real estate bonds, suddenly led to the market losing its appetite until it had more time to digest the various offerings, several observers have told REFIRE.

The banks are now likely to release parts of their holdings in drips and drabs onto the market, in the absence of any likely trade buyer for such a large block of shares in a company that is seen as only of average quality, compared to a number of its listed peers. New CEO Zinnöcker has made it clear that he wants Gagfah, with its more than 100,000 apartment units nationwide to be more of a real estate company than a financially-engineered vehicle, which it had often been accused of being under ex-majority owner Fortress.