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Raven Russia Limited: Girding the loins

Raven Russia is a Guernsey registered property investment company specialising in commercial real estate in Russia, concentrated on the acquisition and development of high quality Class A warehouse complexes in the country’s major cities and their subsequent leasing to Russian and international tenants.

The group is strengthening its balance sheet further while eyeing acquisition possibilities and other developments. The placing of a second tranche of the 6.5% convertible preference shares will raise (subject to GM approval next month) a gross £102.3m at an issue price 14% higher than the first tranche last year. Although somewhat dilutive of earnings, it enhances net asset value and supplies firepower.

The placing of the first tranche of convertible preference in June 2016 was used for restructuring debt, but was also followed some months later by the acquisition of three properties in St Petersburg. These properties (87% leased in Roubles) were acquired on a yield of 16%. Not a bad rate of return when borrowing costs are a little over 7%.

In addition to acquisitions of already completed and let properties, what is intriguing is the announcement last month of a Memorandum of Understanding (‘MOU’) with the Central Union of Consumer Cooperatives for the Russian Federation ("the Co-Op") to develop a nationwide network of wholesale distribution centres for agricultural products. Such a MOU demonstrates how far the group has come in establishing itself as a major and accepted force in the property segment in Russia. Target returns to Raven Russia are a minimum 12% unleveraged.

For the moment we maintain our Fair Value of 60p for the Ordinary shares, but may revise this (upwards) on publication of the Interim Report due at the end of August.