13 June 2018 – El Confidencial
Following the green light granted by the CNMV – Spain’s National Securities and Exchange Commission – for Blackstone’s takeover of Hispania, the countdown has begun for the US fund to take control of the company, a milestone that is dependent upon it obtaining 50% plus one share and which, if no rival offer prevents it, could start to take shape on 13 July, when the term for the acceptance of the offer comes to an end.
From that moment on, Blackstone plans to exclude the Socimi from the stock market, which means that it will lose the benefits of the special tax regime, whereby it has been exempt from paying corporation tax in exchange for distributing at least 80% of its profits in the form of dividends, which are taxed at between 19% and 23%.
Blackstone’s decision will, therefore, have a direct impact on the public coffers, given that the conversion of Hispania into a limited company (SA) means that it will now be taxed as a company. Nevertheless, as is typical amongst these large investment vehicles, the fund has created a company structure aimed at financially optimising its tax bill for the duration of the investment period.
According to confessions made by Blackstone itself to the CNMV, the offer is being made through the company Alzette Investment Sarl, which was constituted on 2 February in Luxembourg for the purposes of this operation. Its only shareholder is Alzette Holdco Sarl, also a Luxembourg-registered company and itself wholly owned by BRE/Europe 9NQ Sarl, which is in turn controlled by BREP Investment 9NQ LP, an exempted limited partnership registered in the Cayman Islands.
As such, the ultimate parent company operates under a tax haven that ensures that it will be free from paying taxes for 50 years (…). In fact, the shareholders of BREP Investment 9NQ LP are different offshore companies owned by Blackstone, which are also covered by the exempted limited partnership structure of the Cayman Islands, with the exception of two, which are headquartered in the US tax haven of Delaware, and which are the entities that really benefit from this structure.
Flagships of opportunistic investment
Blackstone’s BREP funds are the US giant’s “flagships of the opportunistic investment funds”, according to its own definition in the takeover prospectus “with USD 75 billion of investment capital, a net return of 16% since 1991 and 1% of losses over 27 years”.
In order to raise the €1,589.6 million that Alzette will have to hand over if all of Hispania’s shareholders accept the terms of its offer (the fund already controls 16.5% of the share capital after it acquired the stake previously owned by George Soros), the different Blackstone funds have committed to contributing the money, either through capital, shareholder loans or other intra-group financing instruments.
In these types of company structures, the different loans arrangements made between the parent companies and their subsidiaries allow them to decrease the overall tax bill in the different countries in which the corporate chain operates in the form of the interest payments that the funds make to themselves and which allow them to “repatriate” the money invested to the Cayman Islands, at the same time as reducing the profit, and with it, the tax charge.
In the case of the takeover bid for Hispania, in addition, Blackstone is also planning to resort to lenders to raise financing amounting to €850 million, referenced to 3-month Euribor, plus a margin of up to 2.25% per annum, and with a maturity date of 15 May 2021, and with the option of being renewed for one more year.
Similarly, in order to acquire the stake from Soros, Blackstone signed a financing agreement with Morgan Stanley for a maximum amount of €250 million, although in the end it only drew down €128.6 million. In terms of the financial commitments that Hispania currently has (€894.8 million), Alzette says that it is analysing different refinancing options, including both raising new debt and increasing the level of leverage.
In terms of the business, Blackstone’s plans for Hispania include completing the sale of the office portfolio, which the Socimi had to put on hold at the last minute, even though it had already reached an agreement with Tristán to sell it for more than €500 million, due to the presentation of the takeover bid.
By contrast, in terms of the hotel assets, which are the jewel in the Hispania’s crown, its intention is to hold onto the majority of them for between three and seven years, and transfer their management to the team at HI Partners, the company that the US fund acquired last year for €630 million and which it will likely end up merging with the Socimi.
Original story: El Confidencial (by Ruth Ugalde)
Translation: Carmel Drake