Inside Adler’s Fight for Survival After Its 97% Stock Plunge

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(Bloomberg) — Cevdet Caner knew what he wanted when he invited a group of prominent hedge fund managers to a townhouse in London’s wealthy Mayfair district in November 2021. To put the record straight. Repair his reputation. Just weeks earlier, the Austrian property mogul and Adler Group SA, a multi-billion dollar company he helped build, had been accused of fraud by an anonymous whistleblower and a short seller. The accusations meant that Caner needed something else from the assembled group: fresh funds after the firm’s Wall Street relationships dried up amid the claims, which both Caner and Adler deny. 

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He was asking some of London’s most savvy risk takers to take the other side of the short seller’s bet. 

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It didn’t work. More than a year on, after a bruising period where the property group’s market capitalization has fallen from a peak of €3.4 billion in December 2020 to just €118 million Caner has again been talking about money, but this time to Adler creditors. The result is a complex €938 million ($982 million) financing agreement — drawn up in November but still to be agreed — that he hopes will buy the company time to rescue itself.

The deal is a recognition of how closely the fate of Adler is tied to Caner who for many years denied any direct involvement in the group. Whether Adler’s creditors are repaid in full hinges on the value of its assets and how they are sold. For Caner, the lack of transparency around the assets and his knowledge of the plots of land, properties and development sites are what give him an edge in the talks.

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“You can’t restructure Adler and try and take money out of the company without Caner’s input,” said Marc Liebscher, a board member at the investor lobby group SdK which is representing some Adler shareholders. “He is the only one that knows the covenants, the documentation, the cross default clauses. The only one who knows the true value of the assets.”

The question now is whether this second gamble will pay off. It will certainly not be cheap. The financing arrangement — backstopped by a steering committee including BlackRock Inc., Pacific Investment Management Co. and Schroders Plc — incurs an interest rate of 12.5% and gives the creditors the option to take 25% of the company’s equity.

It is a plan now playing out in London’s High Court after some funds rejected the deal in Germany, arguing that it would leave them last in line for repayment. In the short term, the firm needs the money to repay €500 million in debt due to mature on April 27. A delay in agreeing to the deal could “ kill” the company, Adler’s lawyer David Allison told a London hearing in late February. Adler told the court that unless the restructuring plan is sealed the company faced insolvency and a brutal fire sale that would recover just 57% of its debts.

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The implosion at Adler is happening against a backdrop of soaring inflation, rising energy costs and elevated interest rates that are not just impacting the company, but threaten the foundations of Europe’s decade-long real estate boom.

A pressing need for Adler is to hire a new auditor after KPMG quit last year over governance concerns. As part of the financing negotiations, Adler is asking bondholders to waive the company’s obligation to publish an audited annual report until September 2024 to avoid breaching a bond covenant that would trigger an immediate repayment of most of its €4.4 billion ($4.7 billion) of unsecured debt. The length of time that bondholders have had to wait for audited accounts makes it a very rare case among listed companies. It had previously planned to publish audited full-year results for 2022 and 2023 by December last year. 

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“Over a year after the initial claims, there is still such a lack of transparency,” said Tobias Moser, a lawyer at DMR Legal who is advising other Adler creditors. “There are so many open questions that management is still not addressing, it’s outstanding and you don’t see that often.”

Viceroy-Research-Adler-Group.pdf (viceroyresearch.org)

BaFin, the German financial regulator, found in November that Adler had inflated its balance sheet by €3.9 billion ($4 billion) and earnings by €543 million by wrongly consolidating its 2019 accounts in relation to an acquisition. The landlord said it did not share the regulator’s view and has appealed the decision. 

“Adler is mostly reliant on its creditors to lend money and in order for creditors to do this they need approval from their committees,” added Moser, “it’s going to be tough, especially when Adler still doesn’t have an auditor.” 

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The 2021 Mayfair gathering, a stone’s throw from London’s Connaught Hotel, was co-hosted by Caner’s long-time business partner Gunther Walcher, the owner of Aggregate Holdings — one of Adler’s largest shareholders. One attendee described the house as resembling a cross between a business and private home with lavish art on the walls, a pool table and a sofa room while upstairs a team from Aggregate worked. Up until July 2022 when he became Aggregate CEO, Caner had always downplayed any material interest or influence in either Adler or Aggregate although his family, including his wife Gerda, holds a stake in Adler. That holding has lost almost €100 million of equity value over the last 12 months, according to filings reviewed by Bloomberg. 

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A spokesman for Caner denied that the meeting took place, while a representative for Aggregate Holdings confirmed that it occurred at the firm’s London office.

According to property records and documents, the Mayfair townhouse is listed as a business address for Aggregate Holdings. Caner’s wife’s design companies have also been registered at the same address, while the beneficiary owner of the residence is listed as Caner’s brother-in-law, Josef Schrattbauer, who is part of a regulatory probe in Germany that links him to Adler.

Walcher said very little at the Mayfair meeting. Caner did all the talking. And according to one person present his pitch was simple: That he was not the evil genius he was made out to be.

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Renovation works 

That reputation had been burnished during the 2008 financial crisis. A picture of Caner proudly standing outside his £20 million Mayfair home became infamous after it was repossessed in the wake of the bankruptcy of his first property firm Level One. The company collapsed with debts of €1.2 billion. Caner spent over a decade fighting criminal charges of conspiracy, commercial fraud and money laundering. That legal action ended with his acquittal on all charges in 2020. 

While mounting that legal defense, Caner quietly started to rebuild his property empire. The townhouse office in which Aggregate is now based was bought in 2010 for £5 million by an entity called Raine Holdings Ltd, according to land registry documents. The only beneficial owner of Raine listed on the UK’s overseas property register is Caner’s brother in law, Schrattbauer, who is described as holding more than 25%.

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That townhouse, situated between Berkeley and Grosvenor Squares is around the corner from Caner’s repossessed property. He also took a fresh roll of the property dice with an investment — via his family — in Adler, a relatively obscure German real estate company, which in 2013 had assets of just €50 million ($51 million).

By June 2014 Adler was on the rise, striking larger deals that drew the attention of peers in the sector. Caner took an advisory role at the firm, amassing at least €12.6 million in fees, more than €10 million of which was charged in 2019 according to a 2022 forensic investigation by KPMG. The auditor ultimately quit after it failed to “obtain sufficient appropriate audit evidence,” according to Adler, to form an opinion on the property group’s annual accounts.

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Raising equity capital isn’t easy for even the most seasoned and established real estate player. For Caner, whose Level One eventually filed for bankruptcy in 2011, it was likely to have been especially difficult, according to people familiar with the matter. Instead he turned to a group of people who became the mainstay of his efforts to build another property empire. 

Among them was Azeri national Natig Ganiyev. The initial flurry of business with the Harvard-educated Ganiyev boosted Adler’s balance sheet by almost €400 million. But longer term those deals have proved expensive for Adler shareholders. The company has had to write off more than €200 million in property sales made with Ganiyev entities over the past five years after the transactions were not paid for in full. 

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A representative for Adler declined to comment on the repayments, while a representative for Ganiyev did not respond to requests for comment. 

Read More: In Adler’s Orbit, Deals Lead to Azeri First Family

Teddy Sagi, who owns London’s Camden Market, has been involved in some of Adler’s largest transactions. In 2015, when Adler was building itself up from relative obscurity, Sagi sold a significant stake in rival real estate company Conwert Immobilien Invest SE for €285 million, according to Adler company filings. A spokesperson for Sagi said he had sold the stake for €246.5 million, having bought it for €269 million just months earlier, representing a loss for the Sagi group.

Adler did not respond to a request for comment on the €38.5 million discrepancy in the deal’s sales price, as cited by Sagi’s spokesperson. 

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A spokesperson for Caner declined to comment on specific questions for this article.

Friends and family

Short seller Viceroy Research said in its 2021 report that Caner and some of his associates had used Adler to benefit themselves to the detriment of bondholders and shareholders by inflating asset values to artificially boost the balance sheet. This was done, Viceroy said, by selling assets to undisclosed related parties and taking undisclosed fees out of the company.

Scrutiny of Adler’s property deals is intensifying. BaFin investigated a 2019 deal struck by the company to sell a majority stake in the Gerresheim development project in Dusseldorf to Schrattbauer. According to the German regulator’s calculations the price tag overvalued the portfolio by as much as €233 million. This deal was cited by Viceroy — which names Schrattbauer in its report — as illustrative of how a small number of investors had used agreements with Adler to enrich themselves.

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Viceroy alleged that the deal was used to create “fake paper profits” on the balance sheet of an Adler subsidiary called Brack Capital Properties “which allowed Adler to borrow more money.” The deal also allowed Adler to avoid breaching the terms of its debt if the sale had not been agreed.

Schrattbauer did not respond to attempts to contact him.

Prosecutors in Frankfurt have also opened an investigation into the Gerresheim sale, although the focus of the inquiry has not been made public.

The involvement of Schrattbauer in several Adler deals, including Brack Capital, points to the role played by Caner’s family and friends in the rebuilding of his empire which has, said critics, often involved complex networks designed to obscure their ultimate ownership. 

Read More: European Real Estate’s Decade-Long Party Is Coming to an End (1)

Adler and its creditors will return to London’s High Court on April 3. Their fate rests on whether the judge rules if the firm can proceed with the financing deal it so desperately needs.

Caner told journalists last summer that “to be on the front line during tough times, strap on the helmet and fight, that’s what I enjoy.” But life at Adler is beginning to resemble trench warfare.