CCT brings second Reit CB in three days

CapitaCommercial Trust has raised S$225 million ($161 million) from a five-year convertible bond that was said to have been more than twice covered, but still traded down slightly in the grey market. 

Arguably, the terms were fairly aggressive -- for one there is no put, which means the effective maturity is five years -- and it quite quickly became clear that the Singapore dollar-denominated bonds would price at the investor-friendly end.

The hesitation among investors may also have been due to the fact that this was the second CB by a Singapore-listed real estate investment trust (Reit) in just three days, following Ascendas Reit's collateralised S$300 million offering on Monday. CB investors are typically not that keen on Reit CBs because of the high dividends paid by the Reits to their unitholders. As a rule, the dividend yield exceeds the coupon paid on the CB and CB holders usually only get compensated (in the form of a lower conversion price) for a portion of the dividend payouts.

On top of that, the real estate sector in general is still not that hot with investors given the expectations that interest rates will need to start rising this year to ensure last year's government stimulus programmes don't push economies into overheated territory.

That said, CCT has performed well over the past year despite the difficult economic environment, with a 30% improvement in distributable income in 2009, thanks to high occupancy rates and proactive leasing activities. Its Singapore-listed units have risen 129% in the past 12 months.

According to a source, there were a few large orders that helped to secure a positive outcome, including a couple that were of the "fill or kill" type, meaning investors wanted either to get allocated in full -- or not at all. This meant that other investors had to be scaled back, with some not receiving any bonds at all. In other words, there ought to be additional demand to drive the bonds back to par, or above. As of late last night, the CBs were bid at about 99.8 in the grey market, however.

Overall, the Credit Suisse-led deal attracted 35 investors and was more than two times covered, according to a source. Given the availability of stock borrow -- both in the market, and through CapitaLand, which is the sponsor of CCT -- the buyers included a mix of hedge funds and outright buyers. Asia, Europe and the US were all well represented in the order book, which was kept open for about 3.5 hours.

The CB is issued and redeemed at par and was marketed with a coupon/ yield of 2.2% to 2.7% and a conversion premium of 20% to 25% over yesterday's close of S$1.13. It was priced with a coupon of 2.7% and a conversion premium of 20% for an initial conversion price of S$1.356.

The fact that there is no put option is in line with a general desire within the CapitaLand group for longer debt maturities. CapitaLand itself has pushed the envelope several times in this respect. In July last year it sold S$1.1 billion of seven-year CBs with no put and its two CBs before that, issued in February 2008 and May 2007, had tenors of 10 years (seven-year put) and 15 years (10-year put) respectively.

The CCT bonds do, however, carry an issuer call after three years, subject to a 130% hurdle.

The bookrunner was marketing the CB with a credit spread of 180bp over the Singapore-dollar swap rate and a stock borrow cost of 50bp-65bp. CB holders will get compensated for annual dividend payouts above 3.5 Singapore cents, which at the current price translates into a yield of about 3%. In 2009, CCT paid a total dividend of 7.06 cents.

Based on those assumptions and the final terms, the implied volatility comes out at about 20% with a bond floor of 90%.

CCT was the first commercial Reit to list in Singapore. It has a market capitalisation of about $2.3 billion and as of the end of 2009 its total assets amounted to S$6.1 billion ($4.4 billion). It has a portfolio of 11 prime commercial properties in Singapore, including a 60% stake in Raffles City, and also holds 30% of Quill Capita Trust -- a commercial Reit listed in Malaysia that has a portfolio of 10 commercial properties in Kuala Lumpur, Cyberjaya and Penang.

The proceeds from the CB will go towards general corporate purposes, including debt refinancing. The Reit has S$235 million of debt maturing this year, but has earlier said that it has enough cash to repay most of that. Its current gearing is about 33%, which includes $370 million of CBs that mature in 2013.

Last night also saw a second CB in the market for China Green Holdings, a producer and supplier of fresh and processed vegetables and fruit. The three-year deal, which was arranged by Macquarie and UBS, was upsized to Rmb1.35 billion ($198 million) from Rmb1.2 billion and priced late in the evening at best terms for investors, resulting in a 3% coupon, a 5% yield and a 20% conversion premium. A more detailed story on that deal will follow tomorrow.