Final pricing came at par, with a coupon of 80bp over three-month US dollar Libor.
The issuer, Dynasty Assets (Holdings) Limited, is a special-purpose vehicle incorporated as an exempted company in the Cayman Islands. The borrower, Dynasty Property Investment Holdings, is a Bermuda-incorporated financing subsidiary owned by Macquarie Wanda Real Estate Fund Limited (MWREF), a Bermuda-based property fund. Macquarie Group and Dalian Wanda are the sponsors of the borrowing group.
However, in order to avoid the taxes that come with having a permanent establishment, and to take advantage of the double-taxation agreement between Mauritius and China, each of the nine properties is held wholly and directly by a special-purpose property holding company incorporated under the laws of Mauritius.
The underlying assets are in nine cities in eastern China, with mortgages expected to be registered on at least eight of the nine properties, equivalent to 97% of the portfolio valuation. As at the end of January this year, the properties have been independently valued by Knight Frank Petty at Rmb3.8 billion ($475 million).
The properties are located in Nanning, Jinan, Wuhan, Tianjin, Nanjing, Shenyang, Harbin, Dalian, and Changsha. The tenant base of the properties includes international corporations such as KFC and Pizza Hut as well as retailers Parkson and Wal-Mart.
Jones Lang LaSalle is the manager and collection agent responsible for the repatriation of the rental income. As at the end of June, seven of the properties had 100% occupancy, and the remaining two had 98% and 90% respectively. On a portfolio basis, the weighted average occupancy was 98%.
Citigroup is the sole bookrunner, while Macquarie is the co-manager for the deal, which has a maturity of 2.75 years. The bullet Reg-S structured deal has a legal final maturity of 2012. The wide breadth of underlying properties provides a true nationwide geographical diversification to the portfolio, a first for an Asia ex-Japan CMBS.
The notes are backed by a $145 million term-loan facility to the financing subsidiary of the borrower group. The TLF will rank pari passu with a separate $5 million revolving credit facility to the borrower. The CMBS notes will rank pari passu with a cross-currency Rmb/dollar non-deliverable swap hedging the currency and interest rate risk exposure of the issuer and a liquidity facility provided to the issuer.
Since the rental proceeds of the underlying properties are renminbi-denominated and non-interest bearing, while the notes are dollar-denominated floating-rate obligations, Dynasty has entered into a non-deliverable cross-currency swap with swap providers to hedge any foreign currency and interest rate mismatch throughout the transaction.
Over the past six years, ChinaÆs gradual lifting of tariffs and trade restrictions has allowed foreign investors and companies to establish operations on the Mainland via partnerships or joint ventures with locals.
As a result, the domestic retail market has transformed from a small-scale, regional department-store dominated segment to a large-scale, local and foreign operating mall system with a diversified mix of tenants including department stores, international hypermarkets, restaurants and cinemas, such as Carrefour, Wal-Mart, B&Q, and IKEA.
According to MoodyÆs pre-sale report: ôThe inherent risks in a CMBS transaction can be addressed through: the propertyÆs cash flow, its capitalisation rates, and the structure and credit enhancement available to the deal. For this deal, MoodyÆs used a stabilised cash flow and normalised cap rate to derive the value of the properties, while risk was captured through the loan-to-value and debt-service coverage ration. In effect, the deal structure mitigates most of the risks involved. The determined MoodyÆs stabilised value is meant to apply for the transactionÆs life. Therefore, we assumed different adjustments on occupancy levels and rental rates, factoring in prevailing economic conditions as well as the current and future market supply. The MoodyÆs value is therefore not necessarily the same as the appraisal value, typically determined according to the possible value, and which the appraiser deems as fair - under the circumstances - as of the date of valuation.ö
¬ Haymarket Media Limited. All rights reserved.
