British Land set to launch large rights issue

British Land is set to become the latest major property company to launch a huge rights issue to secure its balance sheet and raise funds for future activity.

The company, which is the UK’s second largest real estate investment trust, has begun sounding out investors to act as potential underwriters to the issue. It is expected to come to the market fully underwritten, with much of the risk to be taken by its advisors, UBS and Morgan Stanley.

Although an issue has been under consideration for some time, the sale of Meadowhall shopping centre in Sheffield on Monday for £588m to London & Stamford, the opportunity fund investors backed by Abu Dhabi sovereign wealth, has eased the pressures on the company’s balance sheet. The sale has allowed the company to reduce some of its debt burden, making the issue less of a necessity.

But it is still expected to go ahead on Thursday, and may serve to help the company position itself for when the property market finds a floor. The equity raised will help British Land unlock more than £2.7bn in undrawn credit lines, which are currently not being used for fear of raising gearing levels further. The decision may also mean putting talks to sell other parts of its portfolio on the backburner, for example the discussions around the Broadgate estate in the City of London.

British Land is said to be encouraged by the success of Hammerson’s fully underwritten £584m issue on Monday. Hammerson’s shares bounced 9 per cent following the announcement, which was generally welcomed by investors as securing the company’s future balance sheet position. British Land, which is larger than Hammerson, is expected to be received equally warmly by investors.

Marketing the issue is expected to continue on Wednesday, before the third quarter results on Thursday. Almost all companies in the property sector are looking at ways of raising new money, with particular urgency among those that have seen a rapid drop in the value of their assets cause problems with gearing covenants. Other companies considering similar equity raising measures include Liberty International, which reports later this month, Segro and Brixton. No one from the company was available for comment.