Summary
What exactly lies behind LoneStar’s second failure to secure Japan’s bankrupt REIT?
Totally different ways of doing business and, perhaps, lack of local knowledge .
Analysis
9th September 15:30 pm the second round of creditors hearing ended. After creditors rejected a second time Lone Star plan to take control of Japan’s first ever failed property Trust Tokyo District Court decided to cancel previously submitted rehabilitation plan. Going back to 15th of July during first creditors hearing Daiwa House sponsored property trust B Life opposed Lone Star merger plan ahead of creditors meeting and in fact large creditors viewed Daiwa House offer as more suitable.
Why?
Because Daiwa House proposal not only took in account large creditors interest but shareholders interest too (please see previous note on this website regarding Oaktree). It seems that New City Residence did not took too seriously Daiwa House proposal. Sticking closely to Japanese rehabilitation laws framework New City stressed that it was not legally permitted to consider Daiwa House offer despite its attractive terms. (It is not usually admitted in Japanese court to have big changes such as main sponsor’s name once all parties have agreed upon a rehabilitation plan framework).
In fact some large creditors had shown concern that Lone Stars revised offer was not in favour of New Residence REIT long-term viability. Behind the scene lawyers of both contenders even discussed a common purchase by Oaktree and Daiwa House B Life Investment so that Lose Star becomes the main sponsor and eventually sell it back to Daiwa House but big disagreement upon New City Residence implied return level led to negotiations collapse. In fact Japanese market already made its choice as Daiwa House sponsored B Life Investment REIT price went up +59% between 15th of July and 9th of September outperforming strongly TSE REIT Index during the same period. In addition the third largest creditor Tobias Brown had shown support for a merger between B Life Investment and New City Residence.
You cannot walk on shareholders’ rights twice despite high distressed level.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
