CapitaMall comes to market with $500 million Reg-S bond

CapitaMall Trust Management priced a $500 million Reg-S deal under its $2 billion euro medium-term note programme yesterday. The senior unsecured notes were issued at par, carry a fixed-rate coupon and yield of 4.321%, and mature on April 8, 2015. The issuer was CMT MTN, which is a wholly-owned subsidiary of CapitaMall Trust. Morgan Stanley acted as the sole bookrunner.

Prior to launch, the arrangers went out with a price whisper in the mid- to high-100bp range. Based on investor feedback, CMT then went posted initial guidance representing a spread of 170bp to 180bp over US Treasuries.

At this stage, the issuer advised that it was looking to issue at a size between $300 million and $500 million, based on investor appetite in the market.

"Investors would value a larger deal for a debut issuer such as CMT," said one source close to the deal. "The borrower displayed a high degree of responsibility towards what the market was asking for and priced accordingly," he said.

Guidance was later refined to 172bp to 175bp and the deal size was confirmed by the issuer at $500 million. In the end, the bonds priced at the tight end of guidance at 172bp over the equivalent five-year US Treasury yields.

Towards the close of Asian trading yesterday the market backdrop had weakened, but the bonds managed to trade inside the reoffer price and at a spread between 164bp and 165bp.

The bookrunners were able to secure an order book of almost $1.2 billion from 89 accounts. About 49% of the demand came from investors based in Hong Kong, another 29% from Singapore and the remaining 22% from Europe. Fund managers bought 60% of the book, banks took 23%, private banks 10% and insurance houses 7%.

The deal caught the market by surprise, making speculators and rival bankers think it was a private placement. However, sources close to CMT confirmed that this was not the case. "The client wanted to keep a very tight lid on the talks during investor meetings in case market conditions turned out not to be favourable," said one source. In addition to this, the client had been very selective as to who they wished to meet during the roadshow, therefore discretion was a very important aspect for them to maintain.

However, by yesterday morning, the deal was on the screens across trading floors, which as one banker said, "clearly indicates that this was a very public placement".

This is a debut issue from CMT and the first straight bond from a Singapore-listed real estate investment trust. CapitaMalls Asia came to the equity capital markets in November 2009 when it raised $1.78 billion from an initial public offering, which ranked as the largest IPO in Singapore in 2009. And last month Singapore-listed CapitaCommerial Trust and Ascendas Reit raised S$225 million ($161 million) and S$300 million respectively from the sale of equity-linked bonds.

Prior to CMT, two other property sector issuers have printed bond deals this year: New World Development ($500 million on February 4) and Evergrande Real Estate Group ($750 million on January 21). Given the nature and structure of a Reit, these two issues were not used as a benchmark for CMT.

Instead, the bookrunners looked to recently priced deals, as well as big name corporates such as Westfield Trust, which was trading around the 200bp over Treasuries at the time of pricing, and Sino Property Group, which was quoted at around the 160bp mark.

"A Reit operates like a utility," explained one banker. "It has the cash flow profile, stability and predictability of a utility."

To explain further, Reits are tax designations for real estate firms to be able to bring down or eliminate corporate tax. Therefore the risk profile of these trusts is very different to a straightforward Evergrande or New World.

Moody's has issued an A3 rating on the company's EMTN programme, while CMT itself holds an A2 rating.

CMT owns 14 retail malls across Singapore and China and is a direct subsidiary of CapitaMalls Asia. Both trusts fall under the Singapore-based CapitaLand group. CapitaLand has a 29.6% ownership in CMT.