On 2 March, less than a week after Vladimir Putin’s invasion of Ukraine, the Russian real estate investor Raven Property (RAV) issued an update to its shareholders.
With sanctions raining down on Kremlin-linked banks and any Western company with a presence in Russia, Raven acknowledged huge uncertainties around its ability to access funds held by its Russian subsidiaries, and the conversion of those funds into non-rouble currencies at anything approaching “a commercial exchange rate”.
“We simply do not have clarity on the restrictions that may be placed on the access and movement of funds intra group at this present time,” the company stated. “We are working with banks and lawyers in all jurisdictions but it is still too early to get any definitive view on cash flows available to the company.”
Within a fortnight, Raven concluded its position was no longer tenable. Exchange controls, sanctions and counter sanctions had left its market and financial position “unquantifiable”, the company said. On 17 March, it asked the Financial Conduct Authority to suspend trading in its shares with immediate effect and outlined plans to delist from London.
The stock closed at 4p per share, 88 per cent down on the year. Most investors left holding the stock will have written off the equity value to zero.
This doesn’t mean those stakes are entirely worthless. Though shareholders can no longer trade the stock, they will remain on the shareholder register of Raven Property the private company. As such, they will retain voting rights and will be asked to approve the de-listing plan in the coming weeks.
Once that happens, one of two scenarios will play out. If, by some miracle, peace breaks out in Ukraine and sanctions are rolled back, Raven may choose to keep hold of its assets and play for time. But given the chances that recent events will be reversed, and the fact that it is already “impracticable for the business to continue in its current form”, the only realistic course of events is that Raven divests its business.
On this score, Raven has a last-ditch plan. Assuming investors approve the de-listing, the company can exercise a put option that will transfer the business to Prestino Investments, a Cyprus-incorporated company owned and controlled by Raven’s Russian management team. While investors would no longer own the assets of the company, they would keep an economic interest in the business in the shape of two existing unsecured loans and non-voting preference shares.
At last count, those loans were worth £41mn and Rub1.1bn (£8.3mn) and come with interest rates of 8 and 15 per cent, respectively. The preference shares, which pay a 10 per cent annual coupon, amount to £678mn.
Together, these are significant claims for a company which bowed out of the public market with a £21mn market capitalisation. The expectation – or perhaps hope – is that coupon payments will roll up within the Cyprus subsidiary over the coming months and years. But by its own admission, Raven has warned that current events prevent it from assessing the current value of both the loans and preference shares, or the ability of the rump company to service them.
At the time of its de-listing, Raven’s portfolio of warehouses was in decent shape. With collections running at 97 per cent for the year, and just 3 per cent of its properties un-let, the group was confident of meeting all of its debt obligations for the quarter “should sanctions allow for payment”.
What happens to those assets, and the likelihood of anything being left for shareholders after an indeterminate period of corporate hibernation, is anyone's guess.
To put it bluntly, the prospects don’t look great. For a start, the shares are now untradeable and risk dilution or being wiped out if cash runs dry. If any value is to be recovered, investors must hope the company’s assets aren’t seized, capital markets and geopolitical normalcy is restored, the rouble maintains a semblance of long-term exchange value and rental income continues to be paid amid Russia’s potential economic collapse.
On top of that, the divestment will need to satisfy sanctioning authorities, and Russian management will need to act as good faith counterparties, despite being cut off from the Raven Property group.
“I can’t think of a more uncertain outlook for a company,” said one person familiar with the board’s thinking.
“In these extraordinary times it has become necessary to take extraordinary measures in order to protect all employees and stakeholders in our business,” said Raven chairman Richard Jewson, when announcing the share delisting and the mooted disposal of the Russian business.
“The combination of volatile markets and the continual risk of sanctions and counter sanctions necessitates this transaction. We hope and pray for peace."
