PGC's Torchlight seeks approval for $A15m property underwrite

BUSINESSDESK: Pyne Gould Corp’s Torchlight wants investors in ASX-listed IEF Real Estate Entertainment Group to let it fully underwrite a A$15 million rights issue as part of a restructure to revive the Australian pub and club owner.

The Pyne Gould subsidiary, Torchlight, won the management contract for unit trust IEF last year, and plans to staple the fund’s units with shares in management company Bodiam as part of a restructure to create a listed hotel owner and operator.

The deal will offer 0.6 shares in Bodiam Hotel Group for every IEF unit at 4.1 Australian cents apiece. That’s a discount of 20 percent to the weighted average price for IEF units over the past five trading days.

The underwrite needs investor approval, as it could see Torchlight boost its stake in IEF to 49 percent from about 18 percent if no unitholders take up the offer.

Some A$11.4 million of the funds raised will go towards buying a group of pubs and clubs in New South Wales owned by Icon Hospital, IEF’s biggest tenant, which is now in receivership.

IEF has until June 15 to complete the Icon purchase, and if the rights issue falls through it will have to stump up A$10 million to its major lenders and pay as much as A$7.5 million to the Icon receiver under a put and call option.

“The directors of Bodiam RE, the responsible entity, consider it essential to have the A$15 million rights issue fully underwritten as certainty needs to be given to the fund’s debt holders and the receivers of Icon that matters agreed with them will be able to proceed in the best interests of unitholders,” Bodiam chairman Bryan Mogridge said in his letter to investors.

Mogridge is also chairman of ultimate parent Pyne Gould, which is controlled by George Kerr and Baker Street Capital.

“If the fund is unable to raise the A$15 million or provide debt holders and the receiver of Icon with certainty around this capital sum that conditions already imposed by the major debt holder would materially and adversely affect the fund and its value,” Mogridge said.

The remainder the funds raised will go towards working capital as well as pay a A$450,000 underwrite fee to Torchlight.

As part of the restructure, Bodiam will repay a A$2.5 million loan to Torchlight, of which A$2.4 million is expected to be drawn on at the time of stapling. The loan is payable on demand and incurs a 15 percent capitalised interest.

Investors will vote on the offer on April 5 at an extraordinary meeting in Sydney.

In its independent adviser’s report, BDO Securities, said the terms of the agreement and offer are “fair and reasonable,” and provide a “superior outcome” to investors than if the underwriting agreement isn’t approved.

The new look company will continue with plans to sell its pubs and clubs in New Zealand. The sale contract for its six remaining properties in the Lower North Island hasn’t been fulfilled, and it expects to exit its holdings in the next 12 months. The assets were last valued at some A$12.6 million.

Units in IEF last traded at 5 Australian cents apiece on the ASX, valuing the property investor at A$30.3 million.