Great write-up; well-done. Any thoughts on Logista? Any chance Lukas might change things up a bit, selling all or nearly all of Imperial's stake in Logista?
It is unlikely that IMB will sell Logista. Apart from being a cash cow, Logista provides additional benefits to IMB due to their cash pooling agreement, which allows IMB to borrow from Logista with a maximum drawdown limit of EUR 3,000 million.
The agreement includes a first tranche of 1 billion euros at a market fixed rate of 2.865% plus a margin of 0.75%, while the remainder, up to a maximum of 3 billion euros, will be
maintained at the variable rate of 6-month Euribor plus a spread of 0.75%.
Not only is the credit spread lower than the marginal cost of debt of IMB (the current yield to maturity of IMB's EUR1,050mn bond, IMBLN Corp 5.25 Feb15'31 is 3.68%, implying 1.52% credit spread on 6-month Euribor), but it also comes with lower refinancing risk compared to tapping the public bond market (credit spread can fluctuate and liquidity may dry up due to black swan events). IMB can realise EUR1.8bn proceeds from the sale of Logista (based on the latest market cap), minus applicable tax and fees. However, it will have to repay EUR2.3bn loan from Logista (based on Sep 2024 balance) due to unwinding of cash pooling agreement and refinance the loan at an incremental interest rate of 0.77%, plus new issuance premium (assumed to be 10bp), resulting in additional interest expenses of around EUR20mn and increased leverage ratio, which is credit negative.
Hence, the EUR1.8bn proceeds from the sale of Logista won't be fully deployed for share repurchase or dividend (or IMB risks credit downgrade), and are more likely to be used for debt reduction. The whole transaction (considering unwinding of the cash pooling agreement) will be EPS dilutive.
Thank you, Anthony, for the detailed reply. €1B at 2.865%+0.75% and €3B at Euribor+0.75% -- with a total borrowing cap of €3B -- is very advantageous to IMB. What is the length of the cash pooling agreement? Does IMB possess an option or options to renew and, if so, on what terms and conditions?
The most recent cash pooling agreement came into effect in June 2024 and contemplates a mandatory period for both parties of three years from that date (i.e. June 2027), after which a six-month notice will be required for its termination. i.e. it is automatically renewed if not terminated or amended, but IMB and Logista do amend the cash pooling agreement from time to time based on prevailing market conditions.
This is a related party transaction for both sides. From Logista's side, the transaction was first approved by the CEO, then submitted for ratification by the first Board of Directors meeting held after the date of approval.
If Logista is properly governed, the only way for IMB to continue its cash pooling agreement with Logista (since it is advantageous to IMB) is to maintain a controlling stake in Logista and sizeable market share in Spain, France and Italy, where Logista operates. Then the commercial side of their relationship may provide sufficient vested interest for Logista to continue the cash pooling agreement for years.
Great write-up; well-done. Any thoughts on Logista? Any chance Lukas might change things up a bit, selling all or nearly all of Imperial's stake in Logista?
It is unlikely that IMB will sell Logista. Apart from being a cash cow, Logista provides additional benefits to IMB due to their cash pooling agreement, which allows IMB to borrow from Logista with a maximum drawdown limit of EUR 3,000 million.
The agreement includes a first tranche of 1 billion euros at a market fixed rate of 2.865% plus a margin of 0.75%, while the remainder, up to a maximum of 3 billion euros, will be
maintained at the variable rate of 6-month Euribor plus a spread of 0.75%.
Not only is the credit spread lower than the marginal cost of debt of IMB (the current yield to maturity of IMB's EUR1,050mn bond, IMBLN Corp 5.25 Feb15'31 is 3.68%, implying 1.52% credit spread on 6-month Euribor), but it also comes with lower refinancing risk compared to tapping the public bond market (credit spread can fluctuate and liquidity may dry up due to black swan events). IMB can realise EUR1.8bn proceeds from the sale of Logista (based on the latest market cap), minus applicable tax and fees. However, it will have to repay EUR2.3bn loan from Logista (based on Sep 2024 balance) due to unwinding of cash pooling agreement and refinance the loan at an incremental interest rate of 0.77%, plus new issuance premium (assumed to be 10bp), resulting in additional interest expenses of around EUR20mn and increased leverage ratio, which is credit negative.
Hence, the EUR1.8bn proceeds from the sale of Logista won't be fully deployed for share repurchase or dividend (or IMB risks credit downgrade), and are more likely to be used for debt reduction. The whole transaction (considering unwinding of the cash pooling agreement) will be EPS dilutive.
Thank you, Anthony, for the detailed reply. €1B at 2.865%+0.75% and €3B at Euribor+0.75% -- with a total borrowing cap of €3B -- is very advantageous to IMB. What is the length of the cash pooling agreement? Does IMB possess an option or options to renew and, if so, on what terms and conditions?
The most recent cash pooling agreement came into effect in June 2024 and contemplates a mandatory period for both parties of three years from that date (i.e. June 2027), after which a six-month notice will be required for its termination. i.e. it is automatically renewed if not terminated or amended, but IMB and Logista do amend the cash pooling agreement from time to time based on prevailing market conditions.
This is a related party transaction for both sides. From Logista's side, the transaction was first approved by the CEO, then submitted for ratification by the first Board of Directors meeting held after the date of approval.
IMB has 5 board seats on Logista out of a total 12, but they shouldn't be allowed to vote on this matter due to conflict of interest. (https://www.logista.com/en/home/investors-shareholders/corporate-governance/board-of-directors.html)
If Logista is properly governed, the only way for IMB to continue its cash pooling agreement with Logista (since it is advantageous to IMB) is to maintain a controlling stake in Logista and sizeable market share in Spain, France and Italy, where Logista operates. Then the commercial side of their relationship may provide sufficient vested interest for Logista to continue the cash pooling agreement for years.
Source:
https://www.logista.com/content/dam/documents/logista-corporate/other-relevant-information/en/2023/OIR_Credit%20Line%20Renewal.pdf
https://www.logista.com/content/dam/documents/logista-corporate/other-relevant-information/en/2023/2023-08-03%20VF%20ENG%20Comunicacion%20Operaciones%20vinculadas.pdf