Germany's IVG seeks to save Gherkin fund from liquidation

FRANKFURT/LONDON, March 20 Wed Mar 20, 2013 11:35am EDT

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FRANKFURT/LONDON, March 20 (Reuters) - German real estate company IVG Immobilien is seeking to save the investment fund that owns part of London's landmark Gherkin office block from potential liquidation, as financing banks demand the 180 meter tower reduces its debt.

IVG, which reported an unexpected 100 million euro ($129 million) loss in 2012, burdened by its projects abroad, is shifting a loan to finance the building from Swiss francs to pounds in order to satisfy demands from the banks, a spokesman said on Wednesday.

The valuation of the Gherkin has dropped to as little as 473 million pounds ($715 million) from the 600 million it was valued at when IVG's fund bought half of it in 2007, according to the most recent prospectus of the closed-end fund called EuroSelect 14, as rental income did not meet expectations.

Rents in London's financial district are dropping in some areas and the vacancy rate was 7.3 percent in February versus 4.8 percent at the start of 2007, before the financial crisis, according to property consultancy CBRE.

IVG's investments outside Germany are a drag on profitability and it said on March 5 that those investments were partly responsible for the 100 million euro loss.

The group also did not pay a dividend for last year and could not service a convertible bond.

A 40 percent rise in the franc against the British pound since the Gherkin was financed in 2006 has led to a rise in indebtedness, or the ratio of the loan to the value of the building, to almost 100 percent, according to a statement on IVG's website.

MONEY BACK

Under the terms of the loan, banks have the right to ask for their money back as soon as the ratio hits 67 percent and have therefore asked for the loan to be shifted to pounds to reduce the currency risk, said the spokesman.

IVG is also trying to find an investor for the building by the end of the year as part of the banks' demands. The company and the banks will at that time convene again to discuss the investment, said the spokesman.

He declined to name the five German banks.

Finding an investors might turn out to be difficult, as the some 9,000 private investors in the fund would have to agree to the new stakeholder, which would reduce the value of their holdings, after their initial agreement to the start of the search.

Fifty percent owner Evans Randall also has to agree to the new investor, said the spokesman. Evans Randall declined to comment.

"We're expecting to find a holistic solution by the end of the year," said the IVG spokesman. "Finding an investor is an ambitious target," he said, declining to detail any alternative solutions.

Bonn-based IVG has been negotiating with the banks since 2009 when indebtedness, also called the loan to value ratio, rose to above 67 percent. ($1 = 0.7760 euros) ($1 = 0.6615 British pounds) (Editing by David Holmes)

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