Sabana Shari'ah REIT

[Nick]

Some recent CB pricing from our listed companies:

1) CapitaCommercial Trust (CCT) issued S$175 million convertible bonds due in Sept 2017 with 2.5% coupon. The conversion price of $1.6851 per unit was priced at a 31% premium over the closing price of $1.37 on 13 August 2012.

2) Golden Agri Resources issued US$400 million convertible bonds due in Oct 2017 with 2.5% coupon. The conversion price of $0.8896 per share was priced at a 28% premium over the closing price of $0.695 on 5 Sept 2012.

3) China Merchants Pacific Holdings proposed to issue HK$1,163 million convertible bonds due in Nov 2017 (and put option on Nov 2015) with 1.25% coupon. The conversion price of $0.84 per share was priced at 18% premium over the closing price of $0.71 on 17 Sept 2012.

[valueinvestor]

Low conversion premium will make it more easier for the bondholders to convert it into ordinary shares , reduce the leverage but increase equity to the company .

[KopiKat]

Some recent CB pricing from our listed companies:

1) CapitaCommercial Trust (CCT) issued S$175 million convertible bonds due in Sept 2017 with 2.5% coupon. The conversion price of $1.6851 per unit was priced at a 31% premium over the closing price of $1.37 on 13 August 2012.

2) Golden Agri Resources issued US$400 million convertible bonds due in Oct 2017 with 2.5% coupon. The conversion price of $0.8896 per share was priced at a 28% premium over the closing price of $0.695 on 5 Sept 2012.

3) China Merchants Pacific Holdings proposed to issue HK$1,163 million convertible bonds due in Nov 2017 (and put option on Nov 2015) with 1.25% coupon. The conversion price of $0.84 per share was priced at 18% premium over the closing price of $0.71 on 17 Sept 2012.

Great data!

So, it does look like this Sukuk is really attractively priced!

I suppose either,

1. Their bookrunner had been unable to get strong interest as Sukuk may not be very popular here and/or Sabana is seen to be higher risk (weak sponsor holding <10% stake). They therefore had to price it to be attractive enough + low conversion price premium to be able to raise their $80Mil.

and/or,

2. It's intentionally priced, especially the low conversion price premium so that it can be hit within a much shorter time frame. The new source of funds (fm conversion) can then be easily utilised for more yield accretive acquisitions (increase their AUM => fees). The incremental cost of such funds (from Sukuk conversion to shares) is ~8% (current DPU) - 4.5% (Sukuk Rate) = 3.5%, quite easy to beat for accretive acquisitions...

[tanjm]

You got it the other way around. At 4.5% and about 10% premium (to be generous), this convertible is a bad deal for Sabana Reit's shareholders.

The REIT yields 8%. So the REIT in essence has a liability to shareholder at a 8% yield in return for equity risk for the shareholder. In contrast to a loan where (for example) the REIT owes 4.5% to the loaner. In this case, the holder of the loan takes no equity risk and gets to ride on the upside with no downside, still gets a regular 4.5% yield while taking no equity market risk. Going just by the above, a 3% coupon with a 20% premium would have been more in line.

[KopiKat]

You got it the other way around. At 4.5% and about 10% premium (to be generous), this convertible is a bad deal for Sabana Reit's shareholders.

I agree... I was saying it's attractively priced to sell ie. to the sukuk investors. Was trying to see if I could get some...
It'll be listed tomorrow, $250k minimum board lot size...

[Swinger]

The letter "S" denotes that trading of the Sukuk is restricted to the persons specified in Sections 274 and 275 of the Securities and Futures
Act 2001 (the "SFA").

This issue is only meant for Accredited Investors only unfortunately and I think it's categorized under 'wholesale bonds' which means you can't buy it thru SGX normally unlike 'Retail or SGS Bonds".

[valueinvestor]

Will the DPU be reduced to 90% from 100% after 2 years of distribution as stipulated in their ipo prospectus ?
If it does reduce to 90% , the yield will also be reduced by 10% ?

[Nick]

Will the DPU be reduced to 90% from 100% after 2 years of distribution as stipulated in their ipo prospectus ?
If it does reduce to 90% , the yield will also be reduced by 10% ?

It might be possible but few REITs have actually exercised their prerogative to reduce the payout ratio from 100% to 90% since the amount retained isn't significant though it can be useful to fund AEI or capex. At the moment, only Plife REIT (90%) and CDLH-T (90%) are not paying 100% of its distributable income to unit-holders.

[valueinvestor]

Sabana's retaining cash level is low and gearing is close to 40% , which management promised to cap it at below 40%, so reducing DPU to conserve some cash is highly possible.

[Nick]

Sabana's retaining cash level is low and gearing is close to 40% , which management promised to cap it at below 40%, so reducing DPU to conserve some cash is highly possible.

If there is no outstanding capex or AEI, I don't think retaining 10% of the distributable income will have much impact on their gearing since property leasing is inherently a low return business.

The annualized distributable income: $60.0 million
10% income retained: $6.0 million
Total Debt: $420.0 million

The cash retained will not have any impact on their gearing. It makes more sense to place out new shares or do a rights issue to reduce gearing.