CapitaLand announces new 7Y SGD senior notes at IPG of 4.00%

CapitaLand Group (“CapitaLand”) plans to issue a new 7-year SGD senior unsecured bond at the initial price guidance (“IPG”) of 4.00%. The new bond is expected to be issued on 26 June 2024 with a maturity date on 26 June 2031. CapitaLand is unrated and the new issue is also expected to be unrated. The new issuance is made available to only accredited and institutional investors. CapitaLand indicated that the net proceeds will be used for the refinancing of existing borrowings, financing investments, and general corporate purposes.

CapitaLand Group is one of Asia’s largest diversified real estate groups. The Group focuses on real asset management and real estate development, with a portfolio that spans across more than 260 cities in over 40 countries. Under CapitaLand Group are its listed real asset management business, CapitaLand Investment (CLI), and its privately held property development arm CapitaLand Development (CLD).

For the year ended 31 December 2023 (“FY23”), CapitaLand’s revenue fell 6.9% YoY (“year-on-year”) to SGD 4,835M. This was largely due to lower revenue contribution from its China (including Hong Kong) portfolio which fell 36% YoY to SGD 996M. Lower revenue weighed on gross profit, which fell 11.4% to SGD 1,615M. Meanwhile, the Group also recorded a big 67.2% YoY drop in other operating income, largely attributed to the absence of fair value gains which jumped in the previous year. 

Weaker revenue and other operating income resulted in a 60.4% YoY drop in profit from operations to SGD 783M in FY23. CapitaLand also saw a 14.4% rise in finance costs to SGD 851M due to higher benchmark rates which affected borrowing costs. Overall, profit before tax fell 76.8% YoY to SGD 479M in FY23 while total comprehensive income (loss) deepened from SGD -301M in FY22 to SGD -620M in FY23.

CapitaLand’s total debt rose slightly by 0.4% YoY to SGD 21,080M in FY23, of which 35% (SGD 5,886M) are secured debt. In terms of the maturity profile, about 14% (SGD 2,967M) are short-term debt maturing within a year while a larger 85.9% (SGD 18,113M) are long-term debt. We estimate CapitaLand’s net gearing to be 0.64x as of Dec-23, rising from 0.59x as of Dec-22, due to slightly higher net debt and lower total equity. The Group saw a 6% YoY decrease in total cash levels to SGD 5,019M. Unrestricted cash was SGD 4,951M in FY23, which was more than sufficient to cover short-term borrowings.

Overall, the credit profile for CapitaLand has moderated in FY23 largely due to a weaker fiscal year performance. That said, we think balance sheet strength remains stable and a potential rebound in earnings (if the performance of its China portfolio recovers) may help improve credit metrics.

At the IPG of 4.00%, CapitaLand’s new issuance looks fairly priced against its 2027 and 2029 bonds and more attractive against the 2032 bond, considering the remaining years to maturity. We wish to note that the final price guidance (“FPG”) will likely adjust downwards from the current IPG. 

The new issue looks slightly attractive relative to CAPITA 3.350% 07Jul2031 Corp (SGD) and AREIT 2.650% 26Aug2030 Corp (SGD), which are issued by its subsidiaries (CapitaLand Mall Trust, CapitaLand Ascendas REIT) with similar remaining years to maturity. We also expect the new issue to look fairly priced against CLIVSG 4.200% 12Apr2030 Corp (SGD), by CapitaLand Investment, on an FPG level.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.