“Successful financing is one of the most important success factors for a real estate company,” says Ben Helsing – pointing to his company’s 2,2 billion euros in debt and around 50 mn euros in credit costs.
Until 2013 most of the loans were granted from banks, but since then the mix has been phased over largely to bond issues in the company’s own name. 11 bonds have been issued since, and Citycon also makes use of commercial paper issues.
“This of course gives very flexible and cheap borrowing in local currencies,” says Ben Helsing.
Embarking on a green finance framework helped too.
Junior debt that’s almost equity
To improve its credit ratings, Citycon has issued a large amount of debt in the format of “hybrid bonds”, a form of deeply subordinated debt which counts as 50 percent equity in the calculations of the credit rating agencies – while not diluting existing shares like a clean equity issue would have.
Another innovation that Citycon now explores is the opportunity to pay dividends in the form of newly issued shares. The covid-19 crisis raised investors’ concerns about the value of commercial properties, which is what Citycon’s business is focused on, and to signal its commitment to paying back its debt, the company has decided to cut dividends. Replacing some of the cash dividends with newly issued shares given to shareholders – a solution known as scrips, which is common in many countries but new to the Nordics – could be a good thing both for credit worthiness and shareholder attraction.