Saizen – BT

Moody’s reviews Saizen for possible downgrade

Reit unlikely to achieve operating scale in its existing rating, says agency

MOODY’S Investors Service has put Saizen Reit’s Baa3 corporate family rating on review for possible downgrade.

Kaven Tsang, a Moody’s assistant vice-president/ analyst, said: ‘The review is prompted by Moody’s expectation that it is unlikely that Saizen can achieve the operating scale that was built into its existing rating when it was first assigned, as the credit and financing market remains tight and could deteriorate further in view of the deleveraging progress evident in the banking system . . . Meanwhile, Saizen stays exposed to a high level of refinancing risk in the fourth quarter of 2009.’

Saizen Reit, which was listed on the Singapore Exchange in November 2007, invests in Japanese regional residential properties.

In a proposed rights issue announcement dated Dec 31, 2008, the trust’s manager said that in order to conserve cash, it may as a temporary measure consider significantly reducing or suspending dividend payouts in cash until refinancing plans become clearer and financial conditions are more satisfactory.

On Jan 13, the manager further proposed a scrip-only dividend scheme, subject to unitholders’ approval, to ‘provide the flexibility for Saizen Reit to pay out part or whole of a dividend by way of new scrip dividend units (in the event that a dividend is announced) and allows cash to be conserved for loan repayments’.

Saizen Reit’s unit price has fallen from 82.5 cents on Feb 26 last year to its last traded price yesterday of 10.5 cents.

In Moody’s release yesterday, Mr Tsang, who is also lead analyst for Saizen Reit at the ratings agency, observed that internal reserves – including an estimated 5.7 billion yen (S$96.7 million) in unrestricted cash as at December 2008 – and about 2.5 billion yen in expected proceeds from a recently announced rights issue, are more than enough to cover Saizen Reit’s maturing debt in the first half of 2009.

‘However, it still has to secure additional financing to meet a total of 13.4 billion yen in maturing CMBS (convertible mortgage- backed securities) due in the fourth quarter.’

The proposed rights issue is subject to approval by regulatory bodies and independent unitholders.

‘The tightened state of the global credit environment and the distressed state of the banking sector add material uncertainty to Saizen’s refinancing process, while it is also exposed to the weakening operating environment as Japan moves into recession,’ Mr Tsang said.

Moody’s last rating action for Saizen Reit was on Nov 28 when the outlook was revised to negative.