Shanghai-headquartered Forchn Holdings hopes to raise as much as $280 million with its planned S-Reit listing but the free-float is likely to be on the small side, according to the initial terms published Friday.
Interest in the EC World Reit initial public offering, which will backed by six Chinese logistic assets and is vying to be Singapore's third new real estate investment trust this year, is likely to have received a fillip as a result of last month's Brexit vote, bankers believe.
Forchn's senior management will be more confident about getting the deal done after Britain voted to leave the European Union because global investors worried about the uncertainty will likely seek out more defensive assets, including non-European real estate investment trusts, they said.
The Chinese company, however, has yet to finalise the timetable for the official launch of the initial public offering, one source familiar with the situation told FinanceAsia.
Reits are typically a safe harbour for capital in times of heightened market volatility, given their asset-backed nature and stable dividend payments. The SGX S-Reit 20 Index and the S&P Singapore Reit Index have added 5.0% and 5.2%, respectively, in the six trading days since the Brexit vote. Both are trading at their highest levels year-to-date.
The global economic uncertainties brought about by Brexit are widely expected to temper the Federal Reserve’s desire to raise US interest rates and delay the timing of the next hike. Asian markets are now pricing in just one US rate rise by end-year, whereas beforehand analysts had anticipated up to two rate hikes before the end of this year, one equity capital markets banker told FinanceAsia.
A delayed rate hike is seen as positive to Reit investors because it reduces the attractiveness of competing yield-generating assets.
EC World Reit
According to the EC World Reit prospectus, 409 million to 428 million units will be offered at S$0.76 to S$0.82 each, potentially raising as much as S$376 million ($280 million) for the company.
Nearly 60% of the shares have been pre-subscribed by three cornerstone investors -- Bocom International, Fosun International and Sunkits Resources -- who have agreed to take up 8.5%, 11.3% and 13% of the Reit, respectively.
With Forchn retaining 45% of the company post-listing, it means retail and institutional investors will be allowed to subscribe for only 22.2% of its total equity, making for a relatively low free-float.
By comparison, Manulife US Reit and Frasers Logistics & Industrial Trust sold 63% and 41% of their IPOs to public investors, respectively, when they listed earlier this year.
Based on the indicative terms, EC World Reit will be valued at about S$684 million, a 47% discount to the Reit’s appraised asset value of S$1.28 billion.
EC World Reit will pay a forecast dividend yield of 7.0% to 7.5% for the 2016 financial year and 7.2% to 7.8% for 2017, representing a pickup of at least 80 basis points to Frasers Logistics & Industrial Trust’s 6.4% dividend yield as of Monday.
Frasers Logistics & Industrial Trust owns 51 logistics properties in Australia and is considered a comparable stock to EC World Reit, which holds six logistics and e-commerce properties in Hangzhou, China.
It will be the first pure-play Chinese logistics Reit in Singapore and also the third S-Reit listing this year.
DBS is the sole global coordinator of EC World Reit’s IPO. DBS, CICC, Maybank and Bank of China are joint bookrunners.
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