CMT – OCBC

Issues US$500m 5-year fixed rate notes

Issues US$500m fixed rate notes. Yesterday, CapitaMall Trust (CMT) announced that it is planning to issue US$500m 5-year fixed rate notes bearing interest rate of 4.321% per annum (payable half-yearly in arrears). The notes are issued under the US$2b Euro-Medium Term Note Programme that was established earlier this week. At the same time, CMT had also entered into swap transactions to swap the US dollar proceeds of US$500m into Singapore dollar proceeds of S$699.5m (exchange rate: S$1.399 to US$1) at a S$ fixed interest rate of 3.794% per annum. Proceeds from the issue will be used to refinance existing borrowings, finance investments, asset enhancement works and for general working capital.

Bigger-than-expected issue, but at competitive financing costs. This fixed rate notes issue is the largest done by CMT in recent years and the size of the issue is bigger than what we have hoped for. In our view, separate notes issues with different loan tenures would have reduced the amount of borrowings maturing in 2015 and thus, make refinancing more manageable going forward. With the new issue, CMT will have borrowings of S$799.5m maturing in 2015, which is 29% of its total borrowings maturing between 2011 and 2017. Nevertheless, we think that the size and pricing of the issue are indicators of strong demand and investor confidence in CMT. With the currency swap, CMT will be paying a lower interest rate of 3.794% per annum, which is reasonable in comparison to the financing costs of its recent medium term notes and also within our expectations.

Sufficient cash for Clarke Quay acquisition and AEIs. For the year to date, CMT has raised S$899.5m though its medium term note programs and with its cash holding of S$350.8m, its current liquidity position is more than sufficient to meet the refinancing of its S$440m of borrowings due in 1H10. We expect CMT to use the remaining cash to finance the acquisition of Clarke Quay (S$268m) and the ongoing asset enhancement initiatives (AEI) at Jurong Entertainment Centre (Budgeted capex: S$200.32m) and Raffles City Basement 2 Link (Budgeted capex: S$33.23m).

Maintain BUY. We are not making any changes to our estimates and we maintain our fair value of S$1.93 on CMT. Total return of 14.6% is attractive, taking into consideration the defensiveness of retail mall assets, its strong management team and visible growth pipeline from pending acquisition and AEIs. We maintain our BUY rating on CMT.