* Aims to raise 584.2 million pounds
* Rights issue fully underwritten by Citi and Deutsche Bank
* Issue price represents 62 percent discount to Feb. 6 price
(Adds details, updates after conference call)
By Sinead Cruise
LONDON, Feb 9 (Reuters) - Hammerson has become the first major UK property company to seek emergency funding via a 584 million pounds rights issue devised to curb debts and bolster its balance sheet against a deepening UK property slump.
The FTSE 100-listed company, which specialises in UK and French retail property investment, announced plans on Monday for 7-for-5 fully underwritten rights issue of approximately 405.8 million new shares at 150 pence per share.
Hammerson said the rights issue followed thwarted attempts to sell assets to raise new funds, which had left its financial covenants vulnerable to being breached. UK property prices have slumped more than a third since summer 2007, leaving financial covenants at many UK real estate firms exposed.
The offer represents a 62.2 percent discount to the Feb. 6 closing price of 397 pence per share.
Hammerson shares, which have tumbled 62 percent in the past year, jumped 7.5 percent to 427 pence at 1043 GMT after it said the issue would slash gearing to 81 percent from 118 percent, comfortably below a 150 percent limit.
News of the rights issue follows more than 18 months of cost-cutting and select redundancies at Hammerson, which has been hit hard by a stubborn blockage in UK credit markets and a swift double-digit depreciation of sterling versus the Euro.
In a conference call, Chief Executive John Richards said the decision to issue new equity came after several attempts to sell assets to raise new funds fell through.
"We had a number of assets under offer on what we thought were agreed deals but those collapsed because purchasers were not able to secure their funding," said Richards.
"Given the lack of debt finance, we think it would be unwise to rely upon sales, they are proving protracted and the outcomes remain uncertain," he said, adding that talks to sell its largest asset -- Bishops Square in London's City financial district -- were ongoing.
Collins Stewart analyst Aaron Guy said the rights issue significantly reduced his concerns over possible covenant breaches, although others expressed alarm at the size of the discount offered.
But Richards said he was confident the near-600 million pounds cash injection provided by the rights issue would be enough to insulate the company's finances until the stricken UK property market rallied once more.
"It would require -- without any sales -- about a 25 percent further dimunition in values to come up against that 150 percent gearing covenant," said Richards.
"That, combined with the fall we have already seen, would be a peak-to-trough decline of around 54-55 percent. There is quite a lot of commentary around the 50 percent peak-to-trough decline but that is very much based on UK IPD," he said, referring to benchmark UK property market data, which did not fairly represent Hammerson's prime UK holdings and that 40 percent of its assets were French.
OPERATIONALLY ROBUST
Despite proposing a rights issue, Hammerson's board said it would recommend a total 2008 dividend of 27.9 pence per share in full-year results also published on Monday.
"The board considered dividend policy, but we are clearly telling everyone we have a very robust income stream," Richards said, reiterating that dividend distributions were crucial conditions to its Real Estate Investment Trust (REIT) tax status.
"Not paying a dividend and paying off debt would not have been anything like sufficient to cure the problems of the decline in asset values...I think shareholders will respond positively to that," he said.
The company posted a 33 percent fall in adjusted net asset value to 1,036 pence in the year to Dec. 31 and a 32.5 percent fall in return on shareholders' equity.
At Dec. 31, Hammerson's property portfolio was valued at 6.5 billion pounds.
It said it had net borrowings of 3.45 billion pounds and cash and undrawn credit facilities of 487 million pounds. Some 300 million pounds of this undrawn credit is due for refinance by the end of 2010 but there are no significant maturities on drawn debt until 2012.
Net rental income rose 8.7 percent to just under 300 million pounds, notwithstanding a rise in the number of retailer collapses and turbulent economic conditions.
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters) (Editing by Jon Loades-Carter)