One of the world’s biggest mall operators is using scare tactics to pressure its owners into handing over 3.5 billion euros ($4.2 billion) to help it through the pandemic. Without the cash, Unibail-Rodamco-Westfield says its future is at “material risk.”

The snag is that any investors who believe Unibail is in such a serious state would have already sold their shares. The board needs to convince a different audience: Shareholders who have stuck with the company as the stock has fallen 80% since it agreed to pay $25 billion for Westfield Corp. in 2017. An investment that’s probably now a marginal holding in their portfolios is not going to have a strong claim on their funds.

Unibail, which runs landmark centers like Westfield in West London, wants to cut its 27 billion euros of borrowings rapidly with cash from shareholders via a rights offer plus 4 billion euros of asset sales. Former Chief Executive Officer Leon Bressler and telecoms billionaire Xavier Niel, with a combined 4% stake, are campaigning for an alternative debt-reduction plan — skipping the share sale and doing more disposals. This doubles as a strategic overhaul by advocating the sale of U.S. assets that came with the Westfield deal to refocus on Europe.

The crux of their argument is that Unibail has no immediate financing or liquidity problems, and no corresponding need to dump malls at fire-sale prices to replace the share sale. Cash and credit lines total almost 13 billion euros. The company could drop two notches on its credit rating and remain investment grade. 

Unibail’s riposte published Monday asserts that a strong investment-grade credit rating is essential, not because financing is cheaper but because the company believes this guarantees access to the market. Its credit lines need refinancing regularly and they’re hostage to the rating too.

Unless Unibail knows something the market doesn’t, sustaining a high credit rating is a questionable justification for tapping shareholders at this time. Consider the debt market’s strong support for the company this year. Yields on Unibail’s two bonds issued in April have been on a pretty sustained tightening path. That has continued despite Bressler and Niel creating the risk the share sale fails. Meanwhile, the weighted average maturity of Unibail’s debt is seven-and-a-half years.

This is hard to reconcile with Unibail’s identification of “an immediate need to strengthen our balance sheet.”

The worrying interpretation for Unibail CEO Christophe Cuvillier is that bond investors welcome debt reduction however it’s achieved and may even prefer the strategic pivot the activists are proposing, never mind the loss of the near-term equity injection. 

Shareholders thought they had a binary choice here: Give more money to a team that agreed an acquisition that was overpriced even without Covid. Or skip the cash call, get savagely diluted and receive negligible compensation by selling their participation rights. The Bressler-Niel plan offers a third way, and both bond and equity investors appear comfortable with its admittedly higher risk.

However grim the backdrop, a rights offer should always be embraced as the chance to tell a strategic story and whip up interest in the stock. Instead, Unibail has come up with scaremongering that is too easy to doubt.

(Corrects description of Unibail in first paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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