STRENGTHENING ITS POSITION

•Proposed perpetual securities issuance

•Expecting improved gearing level

•Continued disciplined approach towards Investments

Proposed issuance of perpetual securities

Mapletree Logistics Trust (MLT) announced earlier this week that it is considering the issuance of SGD-denominated perpetual securities. We view the initiative positively as it provides the much-needed ammunition for its acquisition plans. As the perpetual securities are expected to be fully accounted as equity, the issuance also has the effect of paring down MLT’s aggregate leverage. Based on our conversations during an investor presentation held on 6 Mar, we estimate that the aggregate principal amount may fall in the range of S$300-500m, with a five-percent handle for its distribution rate. Together with an expected positive revaluation of its properties in the coming Mar quarter, we believe its leverage may be brought down from 41.4% as at 31 Dec 2011 to a more comfortable 36.5-38.5% level.

Prudent approach towards investments

Management also took the opportunity to share with us its growth plans across different geographical locations during the presentation. In particular, MLT reiterated that it has been careful not to rush into investments but rather work closely with its sponsor on various overseas acquisitions – a prudent move in our view, given the current uncertain market conditions. The group also highlighted that there are ~S$300m worth of pipeline assets from sponsor that are completed, and that it may acquire some of them during the course of the year. We are confident that MLT will be able to continue optimizing its portfolio yield, given its disciplined approach towards acquisitions. We note that its acquisition of two properties in Malaysia just a week ago were made at attractive initial NPI yields of 8.7-8.8%, significantly higher than the implied yield of 7.1% for its existing Malaysia portfolio.

Retain BUY

We will hold off revising our estimates pending more details on the securities issuance. However, as we roll over valuations to FY13 and factor in the recent acquisitions, our fair value is now raised to S$1.18 (S$1.10 previously). Maintain BUY on MLT.

S$ perpetual bond sales at record high

COMPANIES are selling Singapore dollar-denominated bonds with no fixed maturities at the fastest pace on record as low interest rates spur investors to hunt for higher yields.

Mapletree Logistics Trust began marketing a sale of perpetual notes to yield in the mid-5 per cent range, a person familiar with the matter said yesterday, asking not to be identified because the details are private.

Corporates have sold about $2.7 billion of the bonds since December, more than any other year, according to data compiled by Bloomberg which stretches back to 1999.

Falling yields and low benchmark rates are pushing investors seeking higher returns to riskier and longer-maturity assets. Yields on Singapore sovereign debt have dropped 54 basis points since the beginning of July, and the six-month swap offer rate averaged 0.304 per cent over the last 12 months, 20 basis points lower than the previous 12 months.

‘We’ve been in a low interest environment for quite some time, and investors have started to look for higher-yielding alternatives,’ Clifford Lee, head of fixed income at DBS Group Holdings Ltd, said yesterday. ‘This can be achieved by buying bonds from lower-rated companies or by buying notes with longer tenors.’

DBS is helping to arrange Mapletree’s sale, the fifth of such notes denominated in Singapore dollars this year.

Perpetual securities accounted for 34 per cent of all Singapore dollar-denominated bonds sold this year, versus 7.7 per cent in 2011, according to data compiled by Bloomberg. Singapore dollar bond sales more than doubled to $7.8 billion this year compared with $3.7 billion in the same period of 2011.

The notes pay more than securities with a set maturity to compensate investors for the risk that they won’t be called. They are generally senior to equity and subordinated to other types of debt, and may contain terms stipulating that coupons must be paid if a dividend has been declared. Issuers typically retain the right to call the bonds after a set period.

Genting Singapore Plc, which operates one of the country’s two casino resorts, sold the largest Singapore dollar perpetual bond on record when it issued $1.8 billion of 5.125 per cent notes on March 1.

Singapore Post and Olam International, the commodity supplier partly owned by Temasek Holdings, raised $625 million selling perpetual securities last month while Global Logistics Properties increased its 5.5 per cent of existing notes by $250 million in January.

Hyflux Ltd, the country’s biggest provider of water treatment services, became the first company in Singapore to sell perpetual bonds when it issued notes in April last year, bringing the total for 2011 to $1.63 billion.

Singapore Post’s $350 million perpetual bond pays 4.25 per cent until its first call date in March 2022, more than a 10-year bond it sold in March 2010 which has a 3.5 per cent coupon.

‘With high levels of liquidity among private bank investors across Asia and robust conditions in global credit markets, this is a good time to look at perpetuals,’ HSBC Holdings Plc’s Singapore-based managing director for Asia-Pacific debt capital markets, Alexi Chan, said.

‘For many companies, issuing a hybrid instrument can also bring significant benefits to their capital structure.’ – Bloomberg