Month: March 2011
HPH Trust – BT
HPH Trust sets sail in choppy seas, struggles
Mega IPO falls below offer price; may trade in S$ by year-end
HUTCHISON Port Holdings (HPH) Trust, the world’s largest initial public offering so far this year, went underwater yesterday in its stockmarket debut in Singapore.
But there was an interesting morsel thrown at investors. The container port business trust, which is trading in US dollars, could also be trading in Singapore dollars by year-end, potentially becoming the first counter on the Singapore Exchange (apart from exchange traded funds) to be quoted in two currencies.
That is for the future. For now, it had to put up with a rough day. Market watchers had predicted a lacklustre first-day showing from the US$5.45 billion IPO as investors remain jittery about Japan’s nuclear crisis, and those expectations materialised.
HPH Trust opened at 97.5 US cents per unit in the afternoon – 3.5 per cent below the offer price of US$1.01. It peaked at 98 cents, before sinking to as low as 94 US cents in intraday trading. It eventually closed at 95 US cents. A total of 616.79 million units changed hands, pushing the counter to the top of the trading volume table.
The trust was said to be trading below the offer price in the grey market even before its official debut. Institutional broker BTIG Hong Kong told Bloomberg that units were sold for 98 US cents on Thursday in deals it handled.
HPH Trust’s fall yesterday was in line with the Singapore broad market’s – the Straits Times Index dipped 7.1 points to close at 2,935.78. But markets elsewhere in the region rose after enduring selldowns in the wake of the earthquake and tsunami in Japan. The Nikkei 225 Stock Average climbed 2.7 per cent, while the Shanghai Composite Index gained 0.33 per cent.
Canning Fok, chairman of HPH Trust’s trustee-manager, was unperturbed by the trust’s stockmarket showing. ‘Considering the situation, this is excellent,’ he told reporters after the listing ceremony. ‘This is a testing time.’
CIMB research head Kenneth Ng pointed out the final stages of the IPO pricing process had played out before the Japanese catastrophe. With sentiment down since, the drop in HPH Trust’s unit price ‘is just reflecting market’s perception of fair value’, he said.
But even before last Friday’s natural disasters in Japan, signs of unease had emerged on HPH Trust’s IPO. For instance, some analysts were concerned about distributions being denominated in the Hong Kong dollar – which could depreciate as it is pegged to the weakening greenback.
What investors will be watching out for next is whether trade volumes – and HPH Trust’s business – will be affected in the wake of the Japanese calamity. The impact on the trust has been ‘minimal’, Mr Fok said.
For SGX, HPH Trust’s listing has boosted the size of its business trust sector significantly. There are now nine business trusts listed on the exchange with a combined market capitalisation of about US$11.9 billion. HPH Trust itself has a market capitalisation of US$8.8 billion based on the US$1.01 unit offer price.
‘SGX will promote the listing,’ said SGX chairman Chew Choon Seng. ‘We intend, within the year, to facilitate quotation and trading of HPH Trust in Singapore dollars in addition to the pricing in US dollars.’
SGX head of listings Lawrence Wong told reporters that there could be an arrangement allowing investors to buy HPH Trust units in Sing dollars. This is the first time the exchange is working on such an arrangement, ‘and we hope to roll it out to more companies and also even to our derivative products’, he said.
HPH Trust – BT
Hutchison Port dismal debut reflects turn in IPO sentiment
HONG Kong billionaire Li Ka-shing’s Hutchison Port Holdings Trust’s price fall of as much as 6.9 per cent in its Singapore debut yesterday underscored how the tide has turned for new listings, with several deals already being delayed or scrapped.
The slump in Hutchison Port’s shares comes as investors, reeling from the effects of Japan’s earthquake and nuclear crisis, fled stock markets in Asia and Europe, prompting companies from Hong Kong to Singapore and Denmark to delay IPOs or price them lower than initially expected.
Denmark’s ISS, which provides cleaning and cooking services, pulled its planned US$2.8 billion initial public offering on Thursday, joining a host of recent high-profile withdrawals, including Perennial China Retail Trust’s S$1.1 billion Singapore IPO.
The market turmoil also casts a shadow on the listing of commodities giant Glencore International Ltd’s float, which some had expected would happen by mid-May.
‘With markets where they are, it’s a matter of picking the windows. It is going to be very volatile, until the nuclear situation is resolved,’ said a Hong Kong- based investment banker, who earlier this week priced a separate Asian IPO.
The Straits Times Index has fallen about 4.5 per cent since a massive earthquake struck Japan a week ago, while Asian shares outside Japan lost 3 per cent.
Hutchison Port closed at 95 US cents, below its IPO price of US$1.01, in total volume of 616.8 million units. The units had fallen as low as US$0.94.
Traders and analysts had expected the fall, given the IPO was priced before Japan was struck by a massive earthquake last week, unleashing a destructive tsunami and damaging a large nuclear power generating complex.
‘I wouldn’t blow this out of proportion, bearing in mind that the IPO comes on stream at a time of extraordinary and exceptional market volatility,’ said Stephen Davies, CEO of Javelin Wealth Management, a financial advisory firm.
‘Once markets begin to calm down and become a bit more reflective you’ll see people pricing existing shares and also new issues more sensibly and with good reason,’ he added.
Canning Fok, chairman of trustee-manager Hutchison Port Holdings Management, remained optimistic about the company’s prospects despite the weak debut.
‘I think considering the situation, this is excellent . . . We got excellent support during the roadshow, so I am very positive about the whole thing,’ he said.
Hutchison Port, a unit of Hutchison Whampoa, raised US$5.5 billion, making it the largest initial public offering in South-east Asia and the biggest in Asia so far this year.
The trust, which owns and operates ports in Shenzhen and Hong Kong, is hoping to tap into a recovery in global trade and provide investors with exposure to China’s booming infrastructure business.
‘Anything below its offer price is a buying opportunity. It’s a good defensive stock to own, which gives exposure to growing Asian trade, and the yield is quite attractive,’ said Kevin Scully, managing director at NRA Capital.
The IPO, which takes the form of a business trust, had attracted cornerstone investors including Singapore state investment firm Temasek , US hedge fund manager Paulson & Co and fund company Capital Research and Management.
Based on the latest price, Hutchison Port now offers investors a yield of around 6.2 per cent, compared with 5.8 per cent based on the offer price of US$1.01.
The size of the Hutchison Port offering exceeds Petronas Chemicals’ US$4.1 billion fundraising last year, which was the biggest ever IPO in South-east Asia at that time.
DBS, Deutsche Bank and Goldman Sachs are joint bookrunners and issue managers for the offering. JPMorgan, UBS, Barclays, Morgan Stanley are among the co-lead managers. — Reuters
CLT – OCBC
Maiden acquisitions; first step to diversify from sponsor
Maiden acquisitions. Cache Logistics Trust (CLT) recently announced its maiden acquisitions of two Singapore properties for S$39.8m [6 Changi North Way (S$30.9m) and 4 Penjuru Lane (S$8.9m)]. The combined NPI yield is 8%, compared to the existing portfolio yield of 7.7% as at 31 Dec 2010. With the new additions, CLT’s total assets under management will increase to S$783.9m. Nonetheless, CLT remains the smallest among the eight Industrial S-REITs, pacing behind AAREIT and Sabana REIT, whose investment properties exceed S$800m. The acquisitions will be fully funded by debt, increasing CLT’s aggregate leverage from 23.7% (as at 31 Dec 2010) to 27.6%. The transactions are expected to complete within 1H11.
Diversification from sponsor. We applaud CLT’s efforts to diversify away from its sponsor with these third-party acquisitions. In our previous report, we noted that all CLT’s properties are on long-term master-leases (at least 5-years) to its sponsor (CWT) and CWT’s parent (C&P), which manifests as a counterparty risk. The multi-tenanted base of 6 Changi North Way and the sale and leaseback arrangement (S&L) with Kim Heng for 4 Penjuru Lane certainly help to spread out the lessees. We also like the shorter lease expiry period (~3 years) for both properties, which will better position CLT in a rising rental market. Nonetheless, the two properties constitute only about 5.3% of total portfolio value and 3.7% of gross rental income, according to our estimates. There is still much to be done, not only to diversify CLT’s tenant base, but also to reduce its concentration risk on a single asset (CWT Hub which still account for 47% of FY11 gross revenue following the acquisition).
Inflation risk remains a concern. The lease agreement for 4 Penjuru Lane provides for built-in rental escalation of 2% per annum for the next three years, with an option to extend for a further three years. While this provides a 50bp step-up vis-àvis the existing lease structures, we reiterate that it still pales in comparison with Singapore’s FY10 annual inflation rate of 2.8% and MAS FY11 forecast of 4%. If inflation continues above 2% without moderation, CLT’s rental income looks set to be eroded by inflation in real terms for at least the next three years.
Maintain BUY. With a gearing of 27.6%, CLT has debt headroom of S$89m for additional acquisitions before reaching the stipulated 35% limit (without a credit rating). Concentration (CWT Hub), counterparty and inflation risks remain our top concerns for the trust and we expect management to consciously address these as the REIT grows in asset size. Maintain BUY with an increased fair value estimate of S$1.04.
HPH Trust – BT
Hutchison Port may make weak debut
Analysts say fears of Japan’s N-crisis are spooking markets
Hong Kong billionaire Li Ka Shing’s Hutchison Port Holdings Trust’s US$5.5 billion initial public offering is expected to make a weak debut in Singapore today, as ongoing concerns about Japan’s nuclear crisis spook global markets.
Hutchison Port, a unit of Hutchison Whampoa, priced its IPO at US$1.01, the middle of its indicative range of US$0.91-US$1.08, making it South-east Asia’s largest stock offer and the biggest in Asia so far this year.
Units of Hutchison Port may drop as much as 3 per cent on its first day of trading, analysts and traders said.
‘Hutchison’s IPO may be clouded by ongoing fears about a nuclear meltdown in Japan. Its performance may also be affected by Japan and China’s trade shifts following the earthquake. As such, sentiment may be against Hutchison,’ said Lin Jin Shu, an analyst at SIAS Research.
Fears that Japan’s nuclear crisis may worsen come on top of worries about escalating tensions in the Middle East, undermining investor confidence and sparking a sell-off in Asian equities in the last few sessions. Both the Straits Times Index and Asian shares outside of Japan have also dropped about 4 per cent since Friday when a massive earthquake struck Japan.
‘Hutchison was a bit lucky as it was priced before the Japan earthquake. It should open weakly,’ said Wong Kok Hoi, chief investment officer of Singapore-based APS Asset Management, which manages US$2 billion.
However, weakness in Hutchison Port’s stock price may be a good time for investors looking for yield plays and an exposure to China’s booming trade to scoop up its shares.
Hutchison Port owns and operates ports in Shenzhen and Hong Kong and is aiming to cash in on a recovery in global trade and provide investors with access to China’s booming infrastructure business.
At the offer price of US$1.01, the trust offers a yield of about 5.8 per cent based on its forecasted distribution per unit (DPU) of 5.9 cents for 2011. This compares with a yield of around 7 per cent offered by many Singapore-listed business and property trusts.
Kevin Scully, managing director at NRA capital, said he expects Hutchison Port’s DPU to grow in the coming years.
‘They have capacity expansion coming on this year and in 2015 so that will support future DPU growth. The underlying business of container ports in Hong Kong and Shenzhen and three river ports offer good exposure to the booming Chinese economy,’ said Mr Scully.
The IPO, which takes the form of a business trust, had attracted cornerstone investors including Singapore’s investment company Temasek Holdings, US hedge fund manager Paulson & Co and fund manager Capital Research and Management, which had committed to pour in US$1.6 billion in the deal.
DBS, Deutsche Bank and Goldman Sachs are joint bookrunners and issue managers for the offering. JPMorgan, UBS, Barclays, and Morgan Stanley are among co-lead managers. — Reuters
REITs – BT
Can Reits weather the turbulence?
REAL estate investment trusts (Reits) have grown increasingly popular over the years due to their attractive tax-exempt dividend income and greater liquidity as compared to physical property assets.
With more people starting to plan for their retirement earlier, many look to Reits as a form of ‘annuity’ that will see them through their golden years.
Even global fund managers have now set up dividend funds to tap the rise of the dividend culture, with Asia taking centrestage.
Notably, recent times have brought about an increased trend among Reits to acquire yield-accretive overseas assets to diversify their earnings base. This acquisition trail tends to be focused more on developed countries, such as Japan, where yields are perceived to be more ‘stable’. But is this really a wise move or a lack of foresight, from a risk management angle? More importantly, are Reits really that resilient to capital downside in times of turmoil while staying capable of sustaining dividend payouts indefinitely into the future?
Let us evaluate this in the context of the latest natural disaster that has hit Japan.
When news of the recent 9.0-magnitude earthquake and tsunami hit newswires last Friday, investors scurried to sell off positions in a broad range of equities, including the once-believed safe-haven Reits.
This led Reits with income and asset exposure to Japan such as Saizen Reit, Parkway Life Reit (P-Life), Mapletree Logistics Trust (MLT), Frasers Commercial Trust and Starhill Global Reit to shed 16.1 per cent, 5.3 per cent, 4.4 per cent, 6.2 per cent and 2.4 per cent respectively since last Friday.
Some feared fluctuations in the Japanese yen may trigger translation losses for Reits. But, in the first place, the more pertinent question to ask is: is the yen more likely to appreciate or depreciate in such a scenario?
Our guess is the yen may appreciate against the greenback in the short term as Japanese investors repatriate funds back to Japan. With hefty insurance payouts also looming on the horizon, the yen could be further boosted as insurance companies quickly liquidate foreign assets to raise cash.
We borrow confidence that this trend will persist in the short term as the yen’s advance last Friday was similar to that experienced after the 1995 Kobe earthquake. As such, income impact – if any – will be more positive than negative for now.
On the asset front, overall damage was also in check as verified by most of the affected Reits. Besides, most Japanese assets tend to be insured against natural disasters. This being so, any fears arising from the need for excessive capital expenditure are probably unwarranted although insurance premiums are likely to increase going forward – an item that is unlikely to materially dent a Reit’s bottom line.
All in all, most of the Reits walked away relatively unscathed, except one: Saizen Reit. It took a hard knock as the trust’s entire asset portfolio consisting of 146 properties is located in Japan, of which 22 properties are situated in worst-hit Sendai. The lack of diversification of its earnings base sent the Reit reeling, with its units plunging a sharp 16.1 per cent or 2-1/2 cents to 13 cents since tragedy struck last Friday.
Fortunately, most of the other Reits with exposure to Japan have diversified portfolios where income streams come from a mix of geographical locations. Analysts reckon income streams for most Reits are not likely to be materially impacted going forward.
Interest rates-wise, the recent disaster that destroyed much of north-east Japan’s infrastructure is more likely to deflate interest rates than inflate them in the short to medium term as the government attempts to keep interest rates near zero while rebuilding the nation.
Our view is further supported by the Japanese central bank’s recent move to inject 15 trillion yen (S$232.4 billion) into the nation’s money markets to promote financial stability and boost overall liquidity.
Reits with debt arising from Japanese assets are therefore likely to continue operating in an ‘idyllic’ low-interest-rate environment, at least in the short to medium term.
Interest rates could, of course, become firmer in the longer term. After all, they are ruled by a function of demand and supply for funds. For instance, if infrastructural demand increases, increased competition for funds may drive up interest rates.
That said, interest rates are unlikely to be able to escalate very much before triggering government intervention as the Japanese government tends to favour less stringent monetary policies that promote liquidity in the nation’s money markets.
To highlight a couple of Reits that could potentially be affected by interest rate movements in Japan, let’s examine P-Life and MLT – the two Singapore-listed Reits with the greatest amount of Japanese borrowings within the Singapore Reit universe.
Both Reits currently still draw bullish ratings from analysts despite their debt exposure to the stricken nation. In particular, P-Life has held up exceptionally well despite a meltdown in regional markets. So far, P-Life has eased 2.4 per cent year-to-date as opposed to the benchmark Straits Times Index (STI), which has declined 7.6 per cent since the beginning of the year.
Analysts such as Janice Ding from CIMB also remain positive on both Reits’ outlook in the times ahead as reiterated by her ‘outperform’ calls on both stocks and target prices of $1.98 and $1.05 for P-Life and MLT respectively – this translates to 23 per cent and 20.7 per cent upside potential for P-Life and MLT respectively, based on yesterday’s closing prices.
So what are our key takeaways from this?
Diversification of earning streams is perhaps one of the key imperatives from a Reit’s risk perspective as reflected in the case of Saizen Reit. Even though Japan is seen as a developed nation that could provide stable yields from its assets and mature economy, too much of a good thing may be bad after all.
Reits that had other sources of income – such as P-Life and MLT – weathered this round of ‘turbulence’ much better than counterparts that did not.
In fact, sharply discounted prices make such Reits look increasingly attractive from a yield perspective. Not only are they resilient in trying times like these, they ‘fill our wallets’ on a regular basis too. 