Raven’s flight from Russia

This was meant to be the week that Raven Property Group published its 2021 results. Champagne corks were supposed to be popping as profit climbed higher, NAV rose from £265m to £437m, the problems of the pandemic were left in the past and the firm looked forward to reaping the rewards of Russia’s growing e-commerce sector. Instead, this week marks the end of a 17-year journey for the UK-listed firm, which had grown from a risky pipe dream to become one of Russia’s largest warehouse owners. Raven, the brainchild of UK property entrepreneurs Anton Bilton and Glyn Hirsch, has become yet another casualty of Vladimir Putin’s invasion of Ukraine. The company’s directors have been under no illusions as to who the true victims are, though. In a statement on 2 March, the board allied itself firmly with Ukraine, saying it was “deeply shocked and saddened by the situation in Ukraine and the tragic consequences unfolding there”. And while it pales into insignificance next to the hundreds killed, thousands injured and millions displaced, Raven’s fall nonetheless shows the chaos wrought by the wider economic war of sanctions and counter-sanctions, and just how quickly successful property businesses can fall prey to events. Flying high At the beginning of the year, Raven was flying high. Its previous half-year results had seen the portfolio grow to £1.2bn, its net asset value rise to £264.5m and its NAV per share climb to 50p. The results due to be released were expected to show net assets at £437m. Leases for two-thirds of its space had expired during the second half and had been relet at higher rents. Yes, there were concerns about the political situation – there always were in Russia – but Raven was not overly worried. The risks, it said, were unchanged, adding: “This has been a relatively benign period for domestic and international political risks affecting the business.” Back in 2004, when “the Russian project” was first being discussed, Bilton acknowledged the risks, but his eyes were fixed firmly on the rewards. “We are quite adventurous,” he told EG. “There are 11 Russian cities beyond Moscow and St Petersburg with populations of 1m each, and I would love to do some retail development there. We are talking to some Russian partners now about retail warehouses.” Over the next 17 years, Raven built itself into an enviable £1.2bn company, with a presence in most of those cities and poised to take full advantage of Russia’s growing e-commerce sector. Just a month ago, on 18 February, Raven’s share price stood at 28.5p per share. The expectation was that, with the full-year results, this would climb higher. Lettings had been good, the rouble was fairly stable, the pipeline was promising. There had been concerns about the heightened rhetoric coming out of the Kremlin and the Russian troops massing on Ukraine’s borders, but the share price had held firm. No one, including Raven’s management, believed that Putin would invade. Putin’s intentions become clear But over the following weekend the markets grew anxious. The shares fell to 20p. As Putin’s intentions became clear, as the tanks began to roll in on 24 February, and then as the West began to impose sanctions, the price slid further and further. By close of play on 1 March, Raven, the only Russian property company listed on the FTSE, was trading at just 10p a share. The next day, 2 March, Raven issued an update to the market. “It is impossible to predict the challenges that may emerge in the coming weeks,” chairman Richard Jewson told investors. “Sanctions and counter-sanctions are severely limiting the company’s ability to access funds from its Russian subsidiaries,” it would later reveal. “Exchange controls are limiting the ability to convert roubles into alternative currencies, even at the current punitive exchange rates.” The likelihood of being able to pay any dividends, including those due to preference shareholders, such as Quilter which holds 31.6%, looked slim. The warehouses may be fully let, the rents may be paid on time, but the rouble was plummeting and sanctions meant there was no clear way of getting any money out of the business. By 10 March the shares had fallen a further 20% to just 8p a share. There was talk in Moscow that foreign businesses would soon be nationalised by the Russian state. At the news that it was to be removed from the FTSE index, on 15 March, the share price tanked, falling to just 3.9p per share. Raven’s net asset value had become an irrelevance. It was being valued by the market at less than £20m. No choice The founders appeared to have no choice. Despite its strong performance, the UK-listed company simply could not continue doing business in Putin’s Russia. On 17 March, it returned to the market. “In a short timeframe of just two weeks, the impact of the actions of Russia on Ukraine has completely compromised the company’s business model and its ability to assess its current financial position and ability to inform the market accordingly,” Raven told investors. “Given that sanctions have only just been introduced and that they are expected to be in place for the foreseeable future, their impact on the company’s market and financial position is unquantifiable at this time.” “The recent performance of its listed securities,” which had seen the share price collapse from 28p to just 4p, “confirms the market’s view.” The only option, Raven said, was to suspend its shares and hand over control of its 20m sq ft of warehouses and 500,000 sq ft of offices to Pestino Investments, a private company run by Raven’s Moscow-based management and led by its Moscow managing director, Igor Bogdorov. Extraordinary measures Jewson said: “In these extraordinary times it has become necessary to take extraordinary measures in order to protect all employees and stakeholders in our business. The combination of volatile markets and the continual risk of sanctions and counter-sanctions necessitates this transaction. We hope and pray for peace. “In light of the transaction and the matters set out in this announcement, including the conditionality surrounding the exercise of the put option, it is the board’s intention that the listings of the company’s shares be cancelled.” Raven will retain an economic interest in the business via its existing unsecured loans of £41m and Rub1.1bn, as well as through its £678m of non-voting preference shares. But if 75% of shareholders vote in favour of the proposal, Raven will become a shell and Bilton and Hirsch will cede control, becoming mere shareholders in a new business. Under the terms of the deal, the door is being deliberately left open to allow Bilton, Hirsch and co to some day return to Russia. But is it likely that they will want to? Quoth the raven: “Nevermore.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo by Ellie Burgin from Pexels