Objectivity

S’pore listings of Indian Reits may be delayed

THEY should be perfect for choppy markets – low volatility securities in a mature stock market based on assets in a fast-growing Indian economy that many believe will weather the global storm.

But planned Singapore listings of real estate investment trusts, spun off by Indian developers, are being thwarted by the US subprime crisis, which has rocked stock markets and raised doubts about property investment, wherever it is.

DLF Ltd, India’s most valuable property firm, Unitech and Indiabulls Real Estate have been talking to investment banks about listing Reits in Singapore, possibly as early as the first quarter.

But Australian-backed MacarthurCook Industrial Reit last week became the latest to delay a deal when it shelved a $200 million secondary offering in a Singapore market that has fallen by a fifth this year.

One banker, who asked not to be named, said his team has been advising Indian issuers to hold off on Singapore issuance plans because of volatile markets.

‘The market is crap right now. I wouldn’t advise anyone to come and list now,’ the investment banker said.

Indian developers are keen to raise funds for expansion by selling buildings into property trusts, in which they would retain a controlling stake. The trusts should then become willing buyers of buildings as the developers roll out new projects.

The Indians have been watching the success of Singapore’s Reit market, which has grown to almost US$19 billion.

India does not yet allow the securities, although regulators issued draft Reit guidelines last month and analysts expect next month’s Budget to give some indication of when India will get its own Reit market.

DLF is looking to raise US$1.5 billion and has picked Goldman Sachs and Lehman Brothers, bankers have said.

Unitech wanted around US$600 million from listing an office trust and has mandated Deutsche Bank, JPMorgan, UBS and Morgan Stanley as book-runners, two people involved in the deal told Reuters.

The two developers had been looking to launch early 2008 IPOs, banking sources said, but the cost of equity has jumped as much as 30 per cent for some Singapore-listed Reits since July, said Mark Ebbinghaus, head of Asian real estate investment banking at UBS.

‘Where we are at present, clearly the cost of equity for a number of Reits is under pressure, largely because of the flow of capital leaving Asia,’ he said.

But deals could be pushed through because of the scarcity value of Indian property accessible to foreign investors.

‘As long as the pricing is acceptable, we would see a variety of vehicles having some support levels in the Singapore business trust environment,’ Mr Ebbinghaus said. ‘But the timing remains uncertain.’

Reits, which pay most of their rent as dividends, have caught on across Asia in the past five years, with investors liking the bond-like steady income with the prospect of growth if rents and property values rise.

But although Reits are usually regarded as defensive plays, trusts across the world suffered in the second half of last year as the US sub-prime crisis unfolded and hit commercial property markets in the United States and Europe.

The only Indian Reit, Singapore-listed Ascendas India Trust, closed at 99 cents yesterday, well below its IPO price of $1.18.

Singapore’s Reit index has fallen 21 per cent since the start of the year through Monday, in line with a 20 per cent slide by the benchmark Straits Times Index .

Because of the market downturn, at least US$800 million worth of IPOs in Singapore and several million dollars worth of secondary share offerings were delayed in the October-December period. — Reuters