Bankers for Redcape in pitch for IPO
DataRoom Source: TheAustralian
York Capital and Varde Partners, the US hedge funds that snatched up the failed pub group Redcape at the tail end of the financial crisis, are hoping to win over fund managers this week as they prepare to list a second hotel portfolio on the stock exchange.
Bankers to the float, JPMorgan and UBS, have already met with prospective investors in Asia and are due to meet local fund managers over the next few days to test appetite for a $600 million deal.
York and Varde are aiming to raise between $300m and $400m from the market for the 26-odd pubs that generate some of the highest volume of gambling revenues in NSW.
Yet while the hedge fund’s first move to cash in their chips on Redcape paid off handsomely with the listing of 41 Coles pubs in December 2013, this second run at the boards will test the nerve of Australia’s wobbly IPO market.
The hedge funds are likely to retain up to half of their investment in the assets, which were once controlled by the failed listed hotel operator, National Leisure & Gaming.
York and Varde snapped up the business in 2012, and then folded it into another casualty of the financial crisis, the pub landlord Redcape, creating one of the nation’s largest hotel groups. Back then the sector was on its knees reeling from a decade of rampant, debt-fuelled growth. Amid the chaos York and Varde cleaned up, gathering lucrative assets at fire-sale prices.
Barely three years later the hedge funds are banking the profits. And while market sentiment is jittery, many local fund managers have already expressed interest in the deal. This is largely because gambling revenues from the Redcape pubs are soaring. The portfolio earmarked for a listing controls NSW’s top grossing pokie hotels, El Cortez and Eastwood.
It’s part of a statewide gaming boom with the latest figures from the NSW government showing revenue from pokies is at its highest level since the machines were introduced.
The Redcape portfolio derives close to 80 per cent of its income from gaming, with annual earnings before interest, taxes, depreciation, and amortisation nearing $50m.
Yet while the pokie revenue is sky-high, fund managers are likely to cast a sober eye over the figures as this is a sector vulnerable to heavy-handed regulation.
As momentum gathers on Redcape, sentiment on the $800m-plus Costa float remains divided. Yesterday some fund managers said they had passed up a potential investment in the fruit and vegetable grower and argued its valuation should be well below the targeted figure of 16 times projected annual net profit.
One factor deterring investors is that Frank Costa will remain the company’s landlord for its blueberry business, in a structure described as similar to the failed Timbercorp business.
Source: The Australian - 24th June 2015
