The owners of LJ Hooker and its advisers, Citi and Morgans, are believed to be making attempts to secure $22 million ahead of the company’s initial public offering to pay down part of a $61m loan to Macquarie.
The real estate chain, which is chaired by Janusz Hooker, the grandson of the company’s founder, has aspirations to list on the Australian Securities Exchange around March next year, just months after the anticipated float of rival McGrath Estate Agents.
However, it is understood that of the $22m that LJ Hooker hopes to secure from its pre-IPO raising, $15m will be used to reduce its debt burden to Macquarie to prevent a trigger of the loan terms that would make it more expensive.
The company also needs to buy new franchisors and some of its franchisees to bolster its current annual earnings before interest, tax, depreciation and amortisation beyond $11m for the 2015 financial year to about $25m to embark on the listing, according to sources.
For fiscal 2016, the business is forecasting EBITDA of $13m.
So far, some market analysts have questioned the level of support that both LJ Hooker and McGrath will secure from predominantly Melbourne and Sydney fund managers at a time that their own residential housing markets are slowing.
Other listed companies exposed to the residential market such as AFG and retailer Adairs have recently seen their shares fall.
But the counter argument is that residential real estate chains often perform more strongly in a declining market on the back of a higher number of property sales.
It is interesting to note Citi’s role in the deal, given Mr Hooker represented Australia at the 1996 Atlanta Olympics in the rowing same team as the investment bank’s Australian head of equity syndicates Robert Jarling.
Citi is targeting institutional investors for the funding and Morgans, high net worth investors. Aquasia is also an adviser on the deal.
This article first appeared in The Australian Business Review.