CapitaLand India Trust announces 3-year senior notes at IPG of 3.90%

CapitaLand India Trust (CLINT) plans to issue new 3-year senior notes at an initial price guidance (IPG) of 3.90%. The issuer is rated BBB- (Stable) by Fitch, and the bond is expected to be rated BBB- by Fitch too. Net proceeds from this issuance will be used to refinance existing borrowings or repay loans, and to finance the business activities, acquisitions and general working capital of the issuer.

About CapitaLand India Trust

(Unless otherwise stated, all growth rates are YoY, and data is as of 1H24. CLINT’s functional currency is INR, but its reporting currency is SGD.)

CLINT is a business trust focusing on owning business real estate in India. CLINT’s existing portfolio includes 10 IT parks, 1 logistics park, 3 industrial facilities, and 4 data centre developments. This comprises 21.0m square feet of completed properties (Table 1) and land with a potential built-up area of 7.1m square feet. It has SGD 3.3b in assets under management.

Table 1: CLINT’s portfolio breakdown (completed properties only)

Operational & financial highlights

CLINT’s operational performance was decent. Rental reversions remained positive for CLINT as a whole, with mid-high single-digit percentage growth in Bangalore and Chennai, offset by flat or negative reversions at aVance Hyderabad, and in Mumbai and Pune. Committed occupancy rates (including aVance II) remained solid at 93%, while the leases are well spread out with about half (49%) expiring in 2028 and beyond.

Looking at financial performance, total property income came in +24% higher (YoY) at INR 8.4b in 1H24; net property income was also reported at INR 6.4b in 1H24, marking a strong +22% change from the INR 5.3b in 1H23 and +11% from the INR 5.8b in 2H23 (Table 2). The increase in income was attributed to a combination of (i) higher rental income from existing properties; and (ii) income from acquisitions completed in the past year. Meanwhile, various profitability metrics like ordinary profit before tax (PBT), actual PBT (ordinary PBT after accounting for changes in fair value), and profit after tax (PAT) all saw double-digit growth rates on a YoY basis.

We saw a similarly decent performance in SGD terms (reporting currency for CLINT) (Table 3). This was on the back of just a mild 1% appreciation of the SGDINR currency pair (as reported by CLINT) – broadly speaking, the various metrics we highlighted above also saw double-digit percentage growth rates in SGD terms. Broadly speaking, we would categorise CLINT’s performance as solid, likely helped by the decent macro backdrop in India.

Table 2: CLINT’s income metrics (INR)

Table 3: CLINT’s income metrics (SGD)

Outlook

We expect CLINT to continue growing at a decent pace, following the solid performance in 1H24. Its property portfolio appears fairly high quality based on its strong occupancy rates, and we like the diversified nature of its assets too. The focus on IT parks means that CLINT could potentially benefit from any longer-term trends about IT outsourcing as well.

On the other hand, investors should be mindful of some risks, including FX risks related to the INR. As the issuer’s reporting currency is in SGD, and this bond itself is also in SGD, any significant move (weakening) in INR strength could adversely affect CLINT’s profitability and overall credit profile. Other risks include the sensitivity to changes in India’s macro situation, due to the asset exposure to the country. Nonetheless, we don’t see these risks as particularly major and feel CLINT is still a solid issuer with a robust longer-term growth story.

Credit highlights

CLINT’s credit metrics look decent at the moment, with a net gearing ratio of 36.5% as of 1H24. This would give it an SGD 915m headroom to take on additional debt assuming a net gearing ratio cap of 50%. Meanwhile, its interest coverage ratio also looks manageable at 2.7x (as reported by management).

However, CLINT also has a fairly low weighted debt maturity of just 2.3 years. Its SGD 95m in cash (and equivalents) is also below the amount of maturing debt in 2024. Notwithstanding these, considering (i) CLINT’s recent track record of profitability; (ii) its solid credit metrics; and (iii) its investment-grade rating likely improving its access to debt markets, we think CLINT should have little issue refinancing its near-term debt.

As for risks, we reiterate the FX risks involved with CLINT, given the differences in functional currency (INR) and reporting currency (SGD). Management has stated that about 55% of its total borrowings were hedged into INR, with a mandate to keep this proportion above 50%. That being said, we think this imperfect hedging in place would result in some exposure to INRSGD fluctuations.

Broadly speaking, we remain aware of risks facing CLINT’s credit profile (especially FX risks) but think the probability of default remains low.

Thoughts on new issue

We compare this new CLINT issue to existing SGD bonds by OUE Commercial Trust (OUECT) (also rated BBB-) and Ascott REIT (ARTSP) (rated BBB), as CLINT itself does not currently have any SGD bonds outstanding.

The IPG figure of 3.90% would represent a comparable yield level against the OUECT bonds but a slight yield pickup against the ARTSP bonds. This is clear especially if we compare this new issue to OUECT 4.100% 14Jun2027 Corp (SGD) and ARTSP 3.630% 20Apr2027 Corp (SGD) which both have similar maturities. We also note that the IPG of 3.90% is likely to be revised downwards to the eventual final price guidance (FPG) which would reduce the attractiveness of this bond. Hence, we think this new issue looks fairly priced.

Table 4: Comparison against peers

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in OUECT 3.950% 02Jun2026 Corp (SGD). The analyst who produced this report holds an NIL position in the abovementioned securities.

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