Month: May 2009
Rickmers – BT
Rickmers to pay more for loan
Rickmers Trust Management Pte Ltd, trustee-manager of Rickmers Maritime, announced on Friday that one of its lending banks has continued to invoke the market disruption clause in one of its loans.
Consequently, a higher rate of interest will be levied on the loan, which will result in an increase in interest cost of approximately US$37,500 for the current fixing period ending August 28, 2009.
This increase in interest cost will not have a significant impact on Rickmers Maritime’s earnings per unit for the financial year ending Dec 31, 2009, it said.
CCT – BT
Did the market ‘talk’ CCT into a rights issue?
CAPITACOMMERCIAL Trust (CCT) last Friday announced an $828.3 million one-for-one rights issue.
The question, however, is whether the office trust really needs a rights issue at this point in time as it faces no immediate refinancing worries. After the successful refinancing of $580 million of debt early this year, CCT secured another $160 million term loan recently, clearing all its debt obligations in 2009. So the bulk of the proceeds from the rights issue are intended to be used to pay off borrowings due in 2010.
‘Despite CCT’s significant debt over 2010-12, we earlier believed that CCT would have the capacity to refinance with straight debt,’ said CIMB analyst Janice Ding. ‘We were disappointed by the announcement and the implied dilution.’
The rights issue seems especially unnecessary when the following factors are considered – parent company CapitaLand is well-capitalised; CCT’s average cost of debt remains low at 3.6 per cent; the trust has yet to tap on more than half of its existing $1 billion Medium Term Note programme; and some $2 billion worth of CCT’s assets (which can be used to secure loans) remain unencumbered.
Another office trust, Suntec Reit, also successfully refinanced more than $825 million of debt recently – even without a strong sponsor. There are plenty of other indications that the tight credit conditions that Reits were facing a year ago are beginning to ease.
So why the ‘painfully dilutive’ (as one analyst put it) rights issue? Could the market have played a large part in CCT’s decision?
The market had responded positively to a succession of cash calls from CCT’s parent CapitaLand and its retail trust CapitaMall Trust (CMT), as well as Keppel Land. All three stocks gained following their rights issue announcements.
In contrast, speculation that CCT will resort to a rights issue has dampened the Reit’s share price performance.
Over the past few months, analysts have repeatedly said that CCT would need to raise some form of equity.
In its April 15 update, for example, Nomura Research pointed out that CCT might need to raise additional equity of around $867.1 million to ensure gearing remains below 0.4 times. Macquarie Research also said in a recent note that there was still a risk of equity issuance in the next six to nine months.
It was something CCT appeared to have taken notice of. ‘I think the reality is that the market . . . has been expecting some form of equity fund raising (from CCT),’ Olivier Lim, CapitaLand’s chief financial officer, who is also a director of CCT’s manager, told analysts and media at a briefing on Friday.
Mr Lim also noted that earlier in the year, CMT and CCT took different routes to financing. CCT refinanced using bank loans, while CMT raised $1.23 billion in a 9-for-10 rights offer. CMT’s method proved more popular with the market, he said.
With the rights issue, CCT is taking a very conservative approach to its gearing. The trust saw the value of its portfolio fall 10.15 per cent in the latest valuation exercise, from $6.71 billion in December 2008 to $6.03 billion as at May 22.
The fall in portfolio value – which was caused by valuers factoring in falling office rents – would have pushed up the Reit’s gearing from 38.3 per cent to 43.1 per cent. With the rights issue, the gearing will instead fall to 30.7 per cent – close to the low end of the Reit’s target gearing range of 30 per cent to 45 per cent.
However, the Monetary Authority of Singapore has set a 60 per cent threshold for a Reit’s gearing – which means CCT still has some buffer. Although, with the outlook for office rents remaining bleak at least until 2011 with office asset values possibly falling even further, CCT’s pre-emptive rights issue could help prevent gearing from reaching truly uncomfortable levels over the next few years.
But it’s still debatable if that is enough to justify a rights issue that has a sharp dilutive effect.
REITs – BT
MAS seeks views on mandatory AGMs for Reits
It says compulsory AGM would improve corporate governance
THE Monetary Authority of Singapore (MAS) has proposed to make annual general meetings (AGMs) mandatory for real estate investment trusts (Reits).
Under the proposal, all Reits regulated as collective investment schemes (CIS) in Singapore will have to, with effect from Jan 1, 2010, hold AGMs once every calendar year and not more than 15 months from the last preceding AGM.
AGMs will also have to take place within four months from the end of the financial year, in line with Singapore Exchange’s rule on the timing of AGMs for other listed issuers.
Currently, all public companies and business trusts are required to hold AGMs and extending the practice to Reits would keep standards consistent, said MAS in a consultation paper yesterday.
Mandating AGMs for Reits would also improve corporate governance by creating an important communication channel between Reit managers and unitholders, it added.
Furthermore, Reit managers can use AGMs to obtain or renew general mandates from unitholders to issue new units in the coming year, said MAS. This would give Reits more flexibility in fundraising.
‘Reits would not face the problem of market speculation arising from convening an extraordinary general meeting (EGM) specifically for the purpose of obtaining such a mandate,’ MAS highlighted.
Several industry watchers had welcomed the mandating of AGMs for Reits when the plan was mentioned briefly in February. The New York Stock Exchange, for instance, already requires Reits to do so each fiscal year.
Suntec Reit manager’s CEO Yeo See Kiat also told BT yesterday that he supported the idea. ‘Reits are like all listed companies,’ he said. ‘AGMs would provide Reits with an additional communication platform with unitholders.’
Mak Yuen Teen, co-director of NUS’ Corporate Governance & Financial Reporting Centre, also agreed that the move will raise the accountability of Reit managers. However, he did not see the need for MAS to pass such a rule to increase flexibility for Reits in fundraising.
In June 2005, MAS had consulted the public on making AGMs mandatory for Reits but decided against the idea. Most people had felt that AGMs were not cost-effective as Reits were already holding EGMs regularly to seek approval for acquisitions.
MAS said that its Property Fund Guidelines today allow for general meetings ‘at the request in writing of not less than 50 participants or participants representing not less than 10 per cent of the issued units of the property fund’.
But MAS recognises that Reits are hardly holding EGMs nowadays because of the dearth of acquisitions. Also, Reit managers gave feedback that EGMs for certain matters, such as a general mandate to issue new units, may create market speculation and hit unit prices.
Interested parties can share their views on the proposal with MAS by June 26.
CitySpring – MS
Flat DPU Guidance Despite Strong Cash Earnings;Lacking Near-term Catalysts
Quick Comment: CitySpring’s FY4Q09 cash earnings of S$21.8 million were higher than our expectations and comparable to the previous quarter’s, despite a downward revision to City Gas’s tariff in February 2009 to adjust for lower fuel costs. Management’s FY10 dividend guidance of S$0.07 implies a 13% yield, which is attractive compared to that of REITs, in our view. The stock has risen 5% since the beginning of May but has underperformed the STI, as concerns remain on the trust’s inability to grow inorganically, due to the current credit crunch.
What’s new: CitySpring reported 4Q09 (January-March 2009) revenue of S$97.3 million (-3.8% QoQ, +1.5% YoY), due mostly to higher revenue from SingSpring. Despite a tariff reduction in February 2009, cash earnings were higher than our expectations at S$21.7 million (+7.6% QoQ, +7.3% YoY). Net losses declined significantly to S$0.4 million (3Q09: -S$21.3 million), due to a S$8.9 million fair value gain on derivative financial instruments.
What we liked: 1) Cash earnings protected by interest rate floor; 2) CRSM was positive for first three months of the year, cumulative availability above 97%; and 3) Basslink Telecoms will be operational by the middle of the year and provide organic growth.
What we did not like: 1) No increase in dividend payout for FY10; 2) CRSM for full year was negative, due to low volatility; 3) write-down of intangibles on the Telecoms Agreement amounting to S$11 million; and 4) reduced gross margin for City Gas as a result of the tariff reduction.