Friday, November 23, 2012

Weekend Comment Nov 23: A rash of cash calls

INSTITUTIONAL INVESTORS CLEARLY like CapitaMall Trust (CMT). The retail REIT had to increase the size of a private placement it carried out this week following strong demand, issuing 125 million new units at $2 each instead of the 100.5 million it initially targeted.

More than 60 institutional investors from Asia, Europe and the US promptly handed $250 million to CMT, which will use the proceeds for capital expenditure, mall enhancements, refinancing, and general corporate and working capital.

Wilson Tan, CEO of CMT’s manager, was certainly pleased, conveying in a statement his gratitude to new and existing investors for their support.

Despite the reception, some analysts have taken issue with CMT’s move. Without mentioning specifically how the money will be used, CMT is not doing investors any favour, they argue.

“We are disappointed that CapitaMall Trust has chosen to raise equity in the absence of major funding needs,” CIMB Research’s Tan Siew Ling says in a note to clients.

“On past occasions, [the management] had shared that it was on the lookout for acquisitions. But we understand that there are no concrete plans for now,” says Tan, who has downgraded her call on CMT to “underperform” from “outperform” and cut her price target to $2.23 from $2.43.

Before this week’s cash call, CMT last carried out a private placement in October 2011, raising also $250 million. It announced then that the proceeds would be used for enhancement initiatives for JCube, The Atrium@Orchard and Iluma.


Analysts generally note that the Star Vista could be an acquisition target for CMT in the near term. The mall in Buona Vista was completed in September and has a committed occupancy rate of about 90%.

But any acquisition at this point may also be challenging, even with the additional funds in CMT’s coffers, according to Nomura’s Sai Min Chow and Paul Lin.

“While we believe that there are potential acquisition targets for CapitaMall Trust to consider, considering its gearing of 35% and the prevailing tight cap rates for good-quality suburban retail assets, we suspect the market may not view such possible deals favourably,” Sai and Lin point out in a note. They have a “reduce” call on the counter and a price target of $1.98.

According to CMT, its aggregate leverage will fall to 35.1% from 37.7% if all the proceeds were used to repay debt.

The placement price of $2 a unit is 4.8% less than CMT’s volume-weighted average price on Nov 21, the day the exercise was announced. The counter fell 2.4% to $2.06 the next day.

But CMT wasn’t the only one that announced a cash call this week. Myanmar-focused Yoma Strategic Holdings said it was seeking $101 million, also through a private placement, to fund its investments. It will issue 192.85 million new shares at 52.5 cents each.

Yoma’s current project is a proposed mixed-use development, comprising residential, retail, hospitality and commercial properties, to be built on a 10-acre site in Yangon. It will buy an 80% stake in the site once it gets shareholders’ approval at an EGM to be convened in 1Q2013.

The group will then seek another cash call, a rights issue, for more funds for the project, which costs between US$330 million ($404 million) and US$350 million to develop.

Keppel Land is also tapping investors for funds. It has set up a US$3-billion multi-currency medium-term note programme to issue securities to refinance debt and fund acquisitions. The developer joins Golden Agri-Resources in seeking cash from debt investors.

Earlier this month, the palm oil producer established a RM5-billion ($2-billion) Islamic medium-term note programme, under which it issued RM1.5 billion of Islamic bonds, or sukuk, this week. The bonds, Golden Agri’s maiden sukuk in Malaysia, were priced at 4.35% and mature in November 2017.

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