Important Events
The US Federal Reserve voted last week to keep the target range for the federal funds rate unchanged at 1.5% to 1.75%, citing a strong job market and increased economic activity. The US unemployment rate had declined, while household spending had been rising in the past few months. Overall measures of inflation and core inflation, which excludes items such as food and energy, continue to remain below the central bank’s targeted 2% level.
Last Thursday, the European Central Bank (“ECB”) made the decision to keep interest rates on the main refinancing operations, marginal lending facility and deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. The central bank mentioned in its monetary policy statement that interest rates are likely to remain at current levels until inflation reaches its targeted 2% level.
In the monetary policy statement accompany the rate decision, the Federal Open Market Committee (“FOMC”) emphasized that the “current stance of monetary policy is appropriate to support sustained expansion of economic activity.” The FOMC will monitor economic conditions and developments in financial markets in determining the future path of the federal funds rate.
The ECB’s asset purchase programme will continue net purchases at a monthly rate of EUR 20 billion. The Governing Council also intends to reinvest the principal payments of maturing securities for an extended period of time to ensure ample liquidity conditions and to accommodate its current stance on monetary policy.
Interest Rates and Currencies
The USD/SGD currency pair declined 0.5% by the end of last week, falling from 1.3606 on 6 Dec to 1.3533 on 13 Dec. The two-year SGD swap offer rate (“SOR”) ended the week up 2 basis points (“bps”) at 1.3875%, while the ten-year SGD SOR ended the week 4 bps higher at 1.705%.
A survey by the Monetary Authority of Singapore revealed that most private sector economists expected the Singapore economy to grow by 0.7% in 2019, up from 0.6% in the previous survey. Survey respondents raised their GDP forecasts for next year, predicting that economic growth would likely be in the range of 1.5% to 1.9% in 2020. The survey listed three factors that could result in further growth upside — the easing of trade tensions, an upswing in the global tech cycle and further fiscal stimulus.
The two-year and ten-year US Treasury yields both decreased by 1 bps to end the week at 1.6037% and 1.8226% respectively. The decline in yields coincided with a jump in US weekly jobless claims, which increased to a more than two-year high of 252,000. Yields on two-year and ten-year Treasury notes climbed to 1.6582% and 1.8922% on Thursday following news that the US had offered to cut existing tariffs on Chinese imports. However, on Friday, Treasury yields declined sharply even as China and the US announced a truce in trade tensions with both sides declaring that an agreement on a phase one trade deal had been reached.
Corporate Updates and New Issues
Last Monday, Mapletree Logistics Trust announced the resignation of its Chief Financial Officer, Mr Lim Ming Rean, Ivan. A replacement candidate has been found and the REIT will announce the new appointment after receiving the regulatory approval. Mr Ivan Lim became CFO in 2016 and will relinquish his role on 31 Dec 19.
KrisEnergy Ltd informed the exchange that a ceremony to mark the first cut of steel for the Cambodia Aspara oil platform was held in Batam Island. Representative of the Royal Government of Cambodia were present with KrisEnergy’s management to celebrate the milestone in the development of the Apsara oil field. The development phase of the project comprises of the minimum facilities wellhead platform and five initial development wells connected to the production barge for the processing of oil, gas and water. The first production of oil from the platform is scheduled to flow in the first half of 2020, which could reach its projected peak rate of 7,500 barrels of oil per day.
On Wednesday, Hatten Land Limited revealed that the company was still in discussion to finalize the agreement regarding a convertible loan from Haitong International Financial Products (Singapore) Pte Ltd (“Haitong”).
Back in October, Haitong decided not to exercise the option to convert the convertible loan into shares. Instead, following negotiations between the two parties, the lender had agreed to extend the maturity of the loan to 10 Apr 20 and repay a partial sum of USD2.5m by 10 Jan 20. Accordingly, the amendment of the loan terms was subjected to terms and conditions that had not been finalized.
On 8 Nov, Hatten Land announced that the lender had agreed to stretch the repayment period by 12 months (from October 2019) over four instalments. Both parties agreed for the loan to not have an embedded equity conversion option and to be subject to terms and conditions to be finalised with the execution of a definitive agreement.
On Wednesday, The Straits Trading Company Limited announced that the company had sold four residential properties in Osaka, Japan for a total cash consideration of JPY8.25 billion (S$103.2m). The properties in the sale transaction are Luxe Taisho, Luxe Shin Osaka, Luxe Dome Mae and Splendid Namba II, freehold residential real estate assets comprising of 516 apartment units that were bought for JPY7.36 billion in aggregate in 2016 and 2017.
On Thursday, Chip Eng Seng Corporation Ltd announced the acquisition of Raffles Campus (Malaysia) Pte Ltd (“RCM”) through its wholly-owned subsidiary, CES Education Pte Ltd, for a total consideration of S$24.4m. The company will fund the acquisition from the rights issue that was earlier announced in September. RCM owns and operates the Excelsior International School that is located on a 79,760-square metre piece of land in Johor Bahru, Malaysia. The newly acquired property will be added to the group’s existing portfolio of international schools and will be renamed under the “Repton School” brand starting from September 2020.
Through an exchange filing on Thursday, Metro Holdings Limited (“Metro”) announced the disposal of its entire 50% stake in PT Metropolitan Retailmart (“PT MRM”) to its joint-venture partner PT Trans Corpora. The joint venture runs 11 retail stores across Indonesia including Jakarta and Bandung. The sale consideration for the transaction was S$25m in cash, determined on a willing buyer, willing seller basis according to the assessment of an independent valuer. Once the sale is completed, Metro is expected to book a net divestment gain of S$9.3m after taking into account tax expenses and other adjustments.
On Thursday, ARA Asset Management Limited (“ARA”) announced a strategic transaction with LOGOS Group (“LOGOS”) to create a logistics real estate partnership in the Asia Pacific region. As part of the partnership, ARA will transfer its entire holdings in Cache Logistics Trust (“CLT”) and ARA Trust Management (Cache) Limited (the management company of CLT) to LOGOS. The deal is projected to be completed by the first quarter of 2020 after regulatory approvals have been obtained.
Soilbuild Business Space REIT (“Soilbuild REIT”) on Friday provided an update regarding the tenant default situation at its property located at No. 2 Pioneer Sector 1. Soilbuild REIT had previously agreed to defer payment of rent under the lease from NK Ingredients Pte Ltd (“NKI”) for a period of two months beginning on 1 Sep 19. To recap, NKI is currently under judicial management, and its judicial managers agreed that Soilbuild REIT could re-enter and take possession of the property if NKI is unable to meet its lease payments after the rental deferment period.
As of last Friday, NKI owed approximately S$5.1m to Soilbuild REIT, which exceeded the security deposit held by the trust by S$2.6m. Following the expiry of the rental deferment period, NKI paid S$200,000 to Soilbuild REIT but thereafter failed to comply with its rental payment obligations. Consequently, the REIT took possession of the property and ended its lease with NKI. According to the announcement, Soilbuild REIT was exploring future options for the property, which included asset enhancement initiatives to maximise its gross floor area, and would make a further announcement in due course.
Last Friday, Keppel Corporation Limited (“Keppel Corp”) announced the delivery by Keppel FELS Limited of a KFELS B Class jackup rig to a wholly-owned subsidiary of Grupo R. Under a sale and leaseback arrangement, Keppel Offshore & Marine Ltd (“Keppel O&M”) will purchase the rig from Grupo R for about USD190m, and the rig will be leased back to Grupo R on a bareboat charter over a ten-year period that will start in the first quarter of next year. During the term of the bareboat charter, Grupo R has the right to purchase the rig at a pre-determined price, and Keppel O&M may sell the rig to Grupo R after the fifth year at a pre-agreed price.
On Sunday, Keppel Land Limited, the property arm of Keppel Corporation, formed a joint venture with Rustomjee Group to build an integrated development in the Thane district of Mumbai, India. Keppel Land will be acquiring a 49% stake in the joint-venture company, Kapstone Constructions Private Limited, for INR4.091 billion (S$78.2m). The deal is subjective to regulatory and third-party approvals and is expected to close by the first quarter of 2020.
This morning, Frasers Commercial Trust (“FCOT”) announced that the REIT will be delisted from the Singapore Exchange in connection with its ongoing merger with Frasers Logistics & Industrial Trust (the “Proposed Merger”). FCOT disclosed that the trust has sufficient financial resources to satisfy in full any of FCOT’s outstanding notes if they are to be redeemed at the option of noteholders due to the Propose Merger and its delisting.
Concurrently, the REIT has commenced a consent solicitation exercise (“CSE”) with regard to its FCOTSP 2.835% 11Aug2021 Corp (SGD), FCOTSP 2.625% 28Feb2020 Corp (SGD), FCOTSP Float 03May2022 Corp (SGD) and FCOTSP 3.185% 23Feb2023 Corp (SGD). In the event that the Proposed Merger is not permitted under any indebtedness of FCOT but still implemented, a cross default under Condition 9(d) of the abovementioned notes may or will occur. Consequently, FCOT is seeking the approval of noteholders to (among other things) waive the occurrence of any events of default or potential events of default; and amend the trust deed to allow FCOT to provide consolidated accounts only on an annual basis and to comply with only the aggregate leverage limit (as opposed to the full Property Funds Appendix).
The expiration date for noteholders to submit a voting instruction for the CSE is 6 Jan 20, or 48 hours before any adjourned meeting. Subject to the terms and conditions specified in the consent solicitation statement, noteholders who voted in favour of FCOT’s proposal, on or prior to 1.00 pm on 31 Dec 19, will be eligible to receive a one-time early consent fee of between 0.03% and 0.30% in principal amount of the applicable bonds. Noteholders who voted yes after the early consent fee deadline will instead be eligible to receive between 0.02% and 0.20% in principal amount of the relevant notes.
