Important Events
Last week, the US Federal Reserve released a new term sheet for the Primary Market Corporate Credit Facility. According to the term sheet, the facility will purchase corporate bonds that (i) have a maturity of four years or less; and (ii) are issued by an eligible issuer.
Eligible issuers should be (a) a business that is created or organized in the United States; (b) and rated at least BBB-/Baa3 by a single credit rating agency, or at least BBB-/Baa3 by two or more rating agencies as of 22 Mar 20. Bonds of issuers that were rated at least BBB-/Baa3 as of 22 Mar 20 but subsequently downgraded to at least BB-/Ba3 may be purchased by the facility.
That said, issuer ratings will be reviewed individually before they are purchased. Issuers should not be insured depository institutions, depository institution holding companies, or subsidiaries of a depository institution holding company, as defined in the Dodd-Frank Act. Additionally, bond issuers would not have received specific support pursuant to the CARES Act or any subsequent federal legislation, and satisfy the conflicts-of-interest requirements of the CARES Act.
On 1 Jul 20, China’s State Council announced that local governments may use their bond quota to subscribe to convertible bonds issued by small and medium-sized banks. This allowance is expected to facilitate funding for micro, small and medium-sized enterprises (“MSMEs”). Even though state-owned commercial banks provide financial services to MSMEs, small and medium-sized lenders have extensive relationships and connections to start-ups and small businesses. Banks should review their internal controls and governance mechanisms so that they qualify for local government support.
The Reserve Bank of India notified that the Indian government has approved the formation of a special purpose vehicle (“SPV”) to purchase short-term papers from non-bank financial companies and housing finance companies to offset existing liabilities. This is, however, open to certain profitable issuers with a minimum capital adequacy ratio of 12% and a net non-performing asset ratio of less than 6%. The SPV will only purchase investment-grade commercial papers and non-convertible debentures with a maturity of less than three months.
Interest Rates and Currencies
The USD/SGD ended at 1.3945 on Friday, up 0.1% for the week. Economic data coming out of the US helped support the US dollar: the US Labour Department reported that companies created a record 4.8 million jobs in June, beating the consensus estimate for a gain of 2.9 million. Meanwhile, Singapore’s June PMI showed that the manufacturing sector contracted for the fifth consecutive month, suggesting that the environment for export and trade activities remains weak. The two-Year SGD Swap Offer Rate (‘SOR’) slid 2 basis points (“bps”) to 0.31%, while the ten-Year SGD SOR was nearly unchanged on the week to end at 0.88%.
The US Treasury curve steepened last week as ten-year yields increased 3bps to 0.67%, while two-year yields dropped 1bps to 0.15%. Minutes from the Federal Reserve revealed that Fed officials have not decided if they want to adopt a yield curve control policy, as they were debating the benefits of the strategy. Market participants continue to discuss whether the Fed would follow the Bank of Japan and the Reserve Bank of Australia in setting upper limits for certain Treasury yields.
Corporate Updates and New Issues
Last Monday, First Real Estate Investment Trust (“First REIT”) announced that PT Tata Prima Indah, its indirect wholly-owned subsidiary, had serviced a termination notice to PT Saputra Karya (“PT SK”), a wholly-owned subsidiary of PT Lippo Karawaci Tbk, to terminate the agreement in relation to the construction of a new hospital to replace the existing Siloam Hospitals Surabaya (“SHS”). First REIT had sold a portion of the land adjacent to SHS to PT SK, in connection with development works for the new hospital, in 2015. A road subsidence incident in December 2018 at a nearby highway has had a serious impact on the development works, which are no longer progressing.
Hatten Land Limited (“Hatten Land”) announced on Monday that the firm has entered into agreements to acquire a 20% interest in ECXX Global Pte Ltd (“ECXX”), for a consideration of USD 6m (S$8.52m). ECXX is a Singapore company that provides digital asset exchange services. The digital asset exchange is built on the blockchain technology, allowing investors to trade and keep digital assets. As part of the agreement, CapitalX Global Limited, ECXX’s largest shareholder, has granted Hatten Land an option to acquire up to 31% of the issued and paid-up share capital of ECXX at market value. Hatten Land will pay USD 5.65m of the purchase consideration by issuing new shares to the seller, and the remaining USD 0.35m in 24 equal monthly cash instalments.
In a separate announcement on Thursday, Hatten Land informed that two of its wholly-owned subsidiaries, MDSA Resources Sdn Bhd and MDSA Ventures Sdn Bhd, had applied to the High Court of Malaya for a leave to call for creditors’ meetings and a restraining order to protect against creditor actions. The applicants are developers of the Hatten City project. The court application is part of Hatten Land’s strategic restructuring for the two subsidiaries, and the company intends to strengthen their balance sheet and restructure its legacy contractual obligations to achieve a more sustainable capital structure, in view of the current business climate.
Last Monday, Keppel Corporation Limited (“Keppel Corp”) and Singapore Press Holdings Limited (“SPH”) announced that the two companies incorporated a joint venture firm, Memphis 1 Pte Ltd, for the development, operation, maintenance and management of data centre facilities at 82 Genting Lane, Singapore. Keppel Corp will own 60% of the joint venture, while SPH will have a 40% interest. Under the agreement between the parties, Keppel Corp will contribute a maximum of S$209.0m to the joint venture, while contributions from SPH will be capped at around S$139.6m. The purchase consideration of S$50m for the leasehold interest in 82 Genting Lane will be paid to Singapore News and Publications Limited, a wholly-owned subsidiary of SPH.
KrisEnergy Ltd (“KrisEnergy”) on Monday announced that the resolution to approve the loan facility from Kepinvest Singapore Pte Ltd, as an interested person transaction, was passed at the extraordinary general meeting on 29 Jun 20. The results of the poll showed that 99.85% of votes were in favour of the resolution and only 0.15% were against the corporate transaction.
On 30 Jun 20, KrisEnergy entered into an amendment agreement to extend the maturity of a USD 200m revolving credit facility (“RCF”), with DBS Bank Ltd (“DBS”), by six months to 31 Dec 20. The RCF is guaranteed by KrisEnergy with an outstanding principal of nearly USD177.3m. Keppel Corp holds the key economic risk in the RCF through a bilateral contract with DBS.
Last Monday, Ascott Residence Trust announced that the distribution rate for its S$250m perpetual securities issued in 2015 will be reset to 3.07% per annum.
On Tuesday, Astrea III Pte Ltd gave notice that it will redeem USD 44,768,052.09 of the ASTLC 6.500% 08Jul2026 Corp (USD) -Class B on a pro-rata basis. Astrea III’s loan-to-value (“LTV”) ratio rose to 39% as at 24 Jun 20, exceeding the maximum LTV ratio of 30%. The collateralised fund obligation is thus implementing the partial redemption to bring its LTV back to 30%.
ESR-REIT has secured two new tenants at 8 Tuas South Lane in Singapore. In an exchange announcement on Tuesday, the trust mentioned that Pacific Integrated Logistics Pte Ltd and Royal’s Engineering & Trading (S) Pte Ltd had leased 284,700 square feet of space at the property. The former will occupy around 206,000 square feet, or an equivalent of 26.9% of the total net leasable area (“NLA”) of the facility, while the latter will lease approximately 78,700 square feet of space, representing 10.3% of total NLA at the facility. Subsequently, ESR-REIT’s rental income exposure to Hyflux Membrane Manufacturing (S) Pte Ltd will fall from 2.8% (as at 31 Mar 20) to 1.6% on a portfolio basis.
Last Tuesday, Frasers Centrepoint Trust (“FCT”) announced that certain shareholders of PGIM Real Estate AsiaRetail Fund Limited (“ARF”) are selling their interest to FCT Holdings (Sigma) Pte Ltd, a wholly-owned subsidiary of FCT, for a consideration of approximately S$197.2m. According to the trust, the acquisition is DPU accretive. The transaction will take FCT’s stake in ARF from 24.82% to 36.89%, and is expected to complete this month. Total borrowings of the REIT will increase 15.5% to S$1.47 billion, lifting its gearing ratio from 32.9% to 36.2%.
On Friday, FCT announced that it had obtained a S$80m RCF from Oversea-Chinese Banking Corporation Limited. Under the conditions of the facility, the lender may accelerate the repayment of any outstanding loan if Frasers Centrepoint Asset Management Ltd ceases to be the manager of FCT, or if Frasers Property Limited does not own at least 51% of the shares of the manager.
Oxley Holdings Limited (“Oxley”) informed the exchange on Tuesday that it has transferred the remaining 17.65% interest in Oxley Beryl Pte Ltd, the owner of the property at 30 Raffles Place, to Golden Compass. Oxley will receive S$206.3m, which includes a retention sum of S$38.0m that will be progressively released to the company upon completion of the outstanding building and other works. Under a deed of rental support, Oxley has agreed to pay for any shortfall from the agreed monthly target rent, in respect of the retail and commercial units at the property, for a period of two years. This shortfall is estimated to be around S$14.2m over the two-year period.
Starhill Global REIT informed the exchange on Wednesday that it has entered into a facility agreement with DBS Bank to convert the existing uncommitted and unsecured S$50m revolving credit facility into a committed facility. Under the terms of the agreement, DBS has the right to require full payment of the facility if YTL Starhill Global REIT Management Limited ceases to be a manager of the trust, or if YTL Corporation Berhad fails to own at least 51% of the issued share capital of the REIT.
Through an announcement to the exchange on Wednesday, Suntec REIT updated that it had injected S$40m in the holding entity of Suntec International Convention and Exhibition Centre (“Suntec Singapore”), through subscribing for new shares. Following the transaction, Suntec REIT’s aggregate effective interest in Suntec Singapore increased from 60.8% to ~66.3%. The convention centre will be closed until 2 Aug 20 to reduce operating costs.
Ascendas Real Estate Investment Trust (“Ascendas REIT”) has announced the acquisition of a new logistics property in Sydney Australia for a purchase consideration of A$23.5m. The new prime grade logistics property will improve the quality of Ascendas REIT’s portfolio and provide exposure to the Sydney market, which is often considered as the strongest industrial market in Australia with robust tenant demand and sustained level of investor interest. Larapinta Project Pty Ltd will develop the logistics property, which will be completed in the second quarter of 2021.
On Wednesday, Olam International Limited (“Olam”) disclosed in an exchange filing that its wholly-owned subsidiary, Olam Holdings BV, had completed the refinancing of its USD 375m RCF with a group of lenders. The facility is guaranteed by Olam and has a 364-day tenor.
Singapore Telecommunications Limited’s Indian joint-venture firm, Bharti Airtel (“Airtel”), sold 25% of Nxtra Data Limited (“Nxtra”) – Airtel’s subsidiary in the data centre business – to The Carlyle Group for USD 235m. The transaction is pending approval from the regulators including the Competition Commission of India. The Carlyle Group has invested USD2.5 billion in various Indian entities and has experience investing in data centres in the US and Spain. Bharti Airtel will hold continue to own the remaining 75% of Nitra.
Later on Thursday, Singtel filed a press release announcing the establishment of a contract between Optus, its Australian subsidiary, and Airbus Defence and Space, for a brand new software-defined satellite. The satellite will be launched in 2023 for broadcast and broadband services via a high throughput satellite design.
Ezion Holdings Limited (“Ezion”) updated the exchange on Thursday that it had entered into an amendment agreement with Yinson Eden Pte Ltd (the “Subscriber”; a wholly-owned subsidiary of Yinson Holdings Berhad) and major secured lenders in connection with its earlier announcements between February and June. In order to work towards a successful restructuring of the group, the filing of the proposed scheme of arrangement shall be put on hold. Ezion may explore alternative arrangements with other potential investors in relation to the proposed transaction. In the meantime, the Subscriber will attempt to extend its support for the group’s operations, including sourcing for prospective deployments.
If the Subscriber does not make a decision about the proposed transaction by 31 Aug 20, the Subscriber would be deemed unable to proceed with the proposed transactions. At that point, the deposit that was placed with the firm shall be forfeited by the Subscriber in favour of the secured lenders, and distributed in accordance with the deposit agreement. Secondly, the transaction agreements shall be terminated immediately and there shall be no recourse against the Subscriber save for the forfeiture of the deposit.
On 3 Jul 20, Century Sunshine Group Holdings Limited informed the exchange that it was unable to redeem S$101.75m of SGD fixed rate notes due on the same day, despite its best efforts. The company did not have adequate cash to redeem the notes.
