CCT – DBS

Capital management exercise

• Issues $225m convertible bonds

• Healthy balance sheet, gearing estimate to remain at 33%

• Maintain Hold, TP $1.23

Raises $225m of convertible bonds. CCT has announced the issue of $225m 2.7% convertible bonds (CB) with an over-allotment option of $25m. The 5-year bond will be maturing in Apr 2015 but can be redeemed by CCT Trustee from Apr 2013. The bonds are unsecured and can be converted into units at a conversion price of $1.356/unit, which is at a 20% premium to yesterday's closing price. If fully converted, CCT's unit base would expand by 5.9%. Proceeds from the issue are earmarked for general working capital (10-25%) and asset enhancements and debt refinancing(75-90%).

Balance sheet remains healthy. We estimate CCT's gearing level to remain at c33%, assuming the CB proceeds are utilized to retire existing debt and after taking into account the issuance of S$70m worth of fixed rate notes in Feb 2010 and sale of Robinson Point. There is unlikely to be refinancing pressure for the total $1,025m loans due next year, inclusive of $370m CB put option due in May 2011. Average cost of debt is expected to trend down marginally from the present 3.9% while the average debt maturity would be extended to an estimated 2.5 years.

Maintain Hold, TP $1.23. We are retaining our Hold call and target price of $1.23. We believe share price catalyst could appear when the group announces further details on its portfolio review exercise, including plans for Starhub Centre, and the gap between stock price and book NAV could narrow over time. In the near term, some overhang from the CB issue could hamper price performance.