PCRT – BT

Perennial trust may cut IPO size in deferred listing

It cites volatile market, HPH Trust offering as reasons for shelving IPO

PERENNIAL China Retail Trust (PCRT), which on Saturday announced the deferment of its proposed initial public offering, is looking to cut the amount of equity to raise.

‘We are tweaking the deal to adapt to the current market conditions and hope to bring the deal to the market soonest possible,’ said Pua Seck Guan, CEO of the trustee-manager Perennial China Retail Trust Management, which is a wholly-owned subsidiary of Perennial Real Estate.

Mr Pua spoke to BT yesterday, a day after PCRT said it was shelving plans for an IPO. The business trust was expected to raise some $1.1 billion in gross proceeds, by issuing units at an indicative price of $1 each.

PCRT cited volatile global market conditions as a reason behind the move. The local stock market has been on shaky ground of late, pressured by political crisis in the Middle East and a reversal of funds from emerging to developed markets.

‘We started to plan the offering at the end of last year, but the market in the last two months has changed so much,’ Mr Pua said. ‘We have also bumped into the big offering of Hutchison Port Holdings Trust (HPH Trust).’

HPH Trust could raise as much as US$4.91 billion to US$5.83 billion in its proposed listing, potentially setting a new IPO record in Singapore. It issued its preliminary prospectus just days after PCRT did so.

PCRT had attracted a fair amount of interest, and managed to secure a cornerstone tranche amounting to 39.2 per cent of the proposed size of the IPO. CB Richard Ellis Global Real Estate Securities, Henderson Global Investors and Lion Global Investors were some of the participants.

The trust secured ‘strong cornerstones’ which ‘indicated that they will stay in the deal for the re-launch’, Mr Pua said.

Nevertheless, PCRT could be making some changes to its listing to draw more demand. It might raise less equity, meaning that the offer price could be less than $1 per unit.

‘At the moment for example, we have close to nil leverage. We can therefore explore taking on a bit of leverage to make the size of the equity fund-raising smaller,’ Mr Pua said.

PCRT’s aggregate leverage was to be 1.8 per cent post-listing, after paying down part of a loan. According to its preliminary prospectus, it has voluntarily adopted an aggregate leverage limit of 60 per cent.

PCRT was to start off with an initial portfolio size of $1.1 billion with four properties in China, and there was to be another $3 billion worth of assets in the pipeline. ‘We want to assure that our stock will do well post-listing,’ Mr Pua said.

A number of market watchers BT spoke to were surprised by news of PCRT’s deferred listing. But a banker reckoned that the trust’s projected distribution yields – lower than HPH Trust’s – could have affected investors’ interest.

‘We are a growth story, we are not a yield story,’ Mr Pua said in response to this suggestion. ‘We offer good total returns to investors.’