Doing The Inevitable; Still . . . . .

SINGAPORE – Shares in Singapore’s Frasers Commercial Trust dropped as much as 12.5 per cent on Wednesday after it announced plans to raise $213.9 million (US$128.5 million) in a three-to-one rights issue and would borrow $675 million to refinance debt maturing this year.

FCOT secures $675m loans; plans rights

Reit to raise $214m from 3-for-1 rights and pay sponsor $342m for property

FRASERS Commercial Trust (FCOT) will raise $213.9 million in a 3-for-1 rights issue and also acquire a property from its sponsor for $342.5 million as it looks to recapitalise.

FCOT also announced yesterday that it has secured financing for $675 million from a consortium of lenders. The offers of finance are conditional upon the recapitalisation exercise, which now has to be approved by shareholders.

FCOT, which has a $1.5 billion property portfolio spanning Singapore, Australia and Japan, plans to buy Alexandra Technopark from sponsor Frasers Centrepoint Limited (FCL).

It will pay for the purchase by issuing convertible perpetual preferred units (CPPUs) – a financial instrument that is rare in the Singapore market.

Then, the fresh loans from the lenders and the bulk of the proceeds from the rights issue will be used to refinance a significant portion of FCOT’s existing debt – including all debt maturing in 2009.

As at March 31, FCOT had gross borrowings of $945.5 million, of which $624.5 million is maturing in the second half of this year.

The entire exercise will see FCOT’s gearing fall from 58.3 per cent at end-Q1 2009 to 38.5 per cent.

And upon completion of the rights issue, the acquisition and issue of the CPPUs and the refinancing, FCOT will not have any debt due until 2012.

‘The transactions are critical for FCOT and will restore it to a stable platform,’ said Low Chee Wah, chief executive of the trust’s manager.

‘The completion of the recapitalisation of FCOT will address the refinancing concerns that have been raised by investors and analysts,’ added Chua Yong Hai, chairman of the trust’s manager.

‘We hope that the market will now re-rate FCOT’s unit price to a level that can reflect more closely its underlying intrinsic value.’

The rights issue was largely expected by analysts. The trust’s gearing rose to 58 per cent at end-Q1 2009 as its property portfolio booked a net revaluation deficit.

The write-downs FCOT has made to date may still not be enough, warned Nomura analyst Tony Darwell in a June 12 note.

‘On our numbers, we expect FCOT to book a further revaluation deficit of $247 million, pushing gearing to 0.73 times,’ he said.

And while FCOT was looking to divest assets, the Reit might need to do more and a rights issue or asset injection from the parent was likely, Mr Darwell added.

As predicted, FCL has indeed stepped in to help its Reit.

The developer, which is the property arm of conglomerate Fraser and Neave, will accept payment for Alexandra Technopark through the CPPUs.

It will also undertake the master lease for the property for five years and give FCOT an annual rent guarantee of $22 million.

In return, FCL will own the CPPUs, which will entitle it to a distribution of 5.5 per cent a year from the Reit.

FCL, which has a deemed stake of 22.2 per cent in FCOT now, will also take up its entire pro rata entitlement of the rights units and is willing to subscribe for up to 32.7 per cent of the total number of rights units.

FCL bought 17.7 per cent of Allco Commercial Reit and 100 per cent of the Reit’s manager for $180 million in July 2008.

The plan was to rename the Reit Frasers Commercial Trust, and inject Alexandra Technopark and two other properties into the portfolio.

The rights units are priced at 9.5 cents each, which represents a discount of 60.4 per cent to the stock’s closing price on Monday.

FCOT was suspended from trading yesterday.

Fraser Commercial Trust to raise S$213.9m through rights issue

Frasers Commercial Trust (FCT) plans to raise S$213.9 million through a rights issue and is planning to acquire Alexandra Technopark from its sponsor Frasers Centrepoint to shore up its balance sheet.

The real estate investment trust will fund the S$342.5 million acquisition by issuing convertible perpetual preferred units (CPPUs), a form of preferred equity, to Frasers Centrepoint.

These CPPUs, which have an annual distribution rate of 5.5 per cent, will not be dilutive to existing units at least for the short term, as they can only be redeemed after three years.

This is believed to be the first time a Singapore REIT is using this instrument. This could be more palatable to the market, which analysts said is showing signs that it is tired of the round of dilutive rights issues in the recent months.

FCT is the sixth property trust this year to raise funds by issuing new units. In all, the six REITs hope to raise about S$3 billion.

“We can do a pure rights (issue), but that would be very dilutive,” said Mr Low Chee Wah, chief executive of the manager of Frasers Commercial Trust. “Together with our advisers, we came out with this instrument which at least addresses the issues that the REIT is facing in the short term.”

REITs have faced difficulties in securing refinancing as the value of their property portfolio fell amidst the recession.

The trust is refinancing its existing debt via a 3-for-1 rights issue at 9.5 cents per rights unit – a discount of 60.4 per cent to its closing price of 24 cents on Monday. The counter was suspended from trading on Tuesday.

As at March 31, 2009, the trust had gross borrowings of S$945.5 million, of which S$624.5 million is due in the second half of this year.

The trust has also secured new debt facilities of S$675 million, which, along with proceeds from the rights issue, will be used to refinance existing debt, including all debt maturing in 2009.

With this, FCT said its gearing will be reduced to 38.5 per cent from 58.3 per cent.

Frasers Commercial Trust announces recapitalisation measures to strengthen its balance sheet and complete its refinancing

• Rights Issue to raise S$213.9 million for debt repayment, capital expenditure and working capital

• Acquisition of Alexandra Technopark, a quality Singapore business space asset financed by preferred equity

• Debt facilities of S$675.0 million secured to refinance debt maturing in 2009