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OUE Limited (“OUE”) plans to issue a new 5-year SGD senior unsecured bond at the initial price guidance (“IPG”) of 4.2%. The new bond is expected to be issued on 24 October 2024 with a maturity date on 24 October 2029. OUE is unrated and the new issue is also expected to be unrated. The Group indicated that the net proceeds will be used for refinancing/ financing new or existing eligible green projects that meet eligibility criteria.
OUE is a leading real estate and healthcare group with assets across Asia. In addition to being the manager of two SGX-listed REITs, OUE REIT and First REIT, the Group also operates and owns healthcare assets through OUE Healthcare. As at 31 December 2023, OUE’s total assets were valued at SGD 9.3B, with SGD 7.9B in funds under management across OUE’s two REIT platforms and managed accounts. OUE has three operating segments, namely Real estate, Hospitality, and Others (operation of F&B outlets and consumer-related investments).
For the half year ended 30 June 2024 (“1H24”), OUE recorded a loss attributable to shareholders of SGD 96.1M, down from a profit of SGD 40.2M in 1H23. The loss was largely driven by 1) poor results from Gemdale Properties and Investment Corporation (investee company which is 25.2% owned by OUE) as investment activities in China were hit by the economic malaise in the nation as well as a slowing property market, and 2) losses in fair value of OUE’s investment properties. The management has highlighted that the loss contributed by Gemdale is noncash in nature and has no material impact on operational cashflows and corporate funding requirements.
OUE’s revenues were up by 3.3% YoY to SGD 314.5M driven by greater contributions from Real Estate (5.1% YoY) and Others business segments (15.8% YoY). Real Estate revenue was supported by higher revenue from Investment Properties and Fund Management (better performance from the Singapore commercial portfolio) and hospitality division (higher occupancy and room rates). Revenue from Others business segment was supported by the opening of new restaurants/ bars and participation in various campaigns.
OUE’s total borrowings rose 1.6% YoY to SGD 2.9B in 1H24, largely due to higher short-term borrowings (repayable within one year or less) which grew 362.0% YoY to SGD 144.8M. However, the Group’s cash balance of SGD 186.3M should provide sufficient support to cover maturing debt.
The majority of OUE’s total borrowings are long-term debt (repayable after one year) which amounts to SGD 2.8B, comprising largely of unsecured borrowings. While this may seem significant, we currently do not see risk for OUE to refinance with easy access to the debt market and room for further secured financing (a large portion of investment properties and property, plant and equipment remains unsecured). OUE’s net gearing ratio remained relatively stable at 0.49 in 1H24, as compared to 0.46 in 1H23. The slight increase was due to higher net debt in the recent financial half.
Chart 1: Bond issuances from OUE and related entities
Issues | Ask Price | Yield to Maturity | Years to Maturity |
- | 4.20%* | 5.00 | |
100.98 | 3.74% | 6.99 | |
101.13 | 3.65% | 2.70 | |
100.10 | 4.33% | 4.77 | |
102.50 | 3.77% | 4.51 | |
101.85 | 3.38% | 4.48 | |
100.68 | 3.54% | 4.33 | |
Sources: Bondsupermart, iFAST Compilations. Data as of 30 Sep 2024. *Not yet issued, yield is based on initial price guidance. | |||
Overall, we think the credit profile of OUE has weakened, largely due to a drop in earnings in 1H24. That said, we do not foresee any difficulties for the Group in servicing its debt, at least in the short term.
OUE’s new issuance is slightly more attractively priced against bonds from OUE REIT, accounting for the difference in tenor. The OUECT 3.900% 26Sep2031 Corp (SGD) was just recently issued on 26 September. It is worth noting that OUE REIT and its bonds have an investment grade rating (BBB- (stable) by S&P Ratings) in contrast to OUESP bonds which remains unrated. Compared to other bond issues from real estate developers of similar tenors (chart 1), we think OUE’s new issue also ranks as one of the more attractively priced issues. With that said, we are expecting the final price guidance to adjust downwards from the IPG.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in HOBEE 4.350% 11Jul2029 Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.
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