Oxley announces exchange offer for its 2024 bonds

Oxley plans to conduct an exchange offer for its OHLSP 6.900% 08Jul2024 Corp (SGD), where it will exchange these bonds for a longer-maturity bond maturing on 28 July 2025 and offering a higher coupon of 7.25% p.a. (existing bond: 6.90% p.a. coupon). This exchange is only available for accredited and institutional investors.

The issuer is Oxley MTN Pte. Ltd., while the bond is guaranteed by Oxley Holdings Limited. The issuer and existing bond are both unrated, while the new series of bonds is also expected to be unrated. Proceeds from this new issuance will be for general corporate purposes, including the refinancing of borrowings, working capital, and capital expenditure requirements.

Highlights

All dollar values in SGD, and all growth rates are on a year-on-year (YoY) basis, unless otherwise stated. Our article will cover a quick overview of Oxley’s 1H24 financials and our thoughts on this exchange offer, though investors may also want to read our recent articles below for further details.

Related article: Credit Update: Oxley – Things might seem better, but still far from over
Related article: Quick Commentary on Oxley’s 1H24 financial results

Oxley reported lower revenues of $164m in 1H24, representing a sizeable decrease of -63% compared to 1H23’s revenues of $438m, mainly due to lower revenue recognition from Singapore developments, especially with a lack of new launches from the previous reporting period. This contributed to lower gross profits of $43m in 1H24 compared to $66m in 1H23 (-34%). The lower gross profits meant that Oxley registered a net loss of -$10m in 1H24 (net profit of $2m in 1H23) despite it reducing its finance costs by 29%.

Looking at Oxley’s balance sheet, we find that its cash (and equivalents) position also fell by -61% to $49m in 1H24 (1H23: $125m), primarily due to a strong push to pay off debts. Net borrowings have also fallen by -14% to $1,311m in 1H24 (1H23: $1,518m), helping its gearing ratio improve as well at 1.44x in 1H24 (1H23: 1.62x). We think Oxley remains fairly leveraged, but see signs that the company remains committed in trying to reduce (improve) its leverage profile.

Outlook

Looking ahead, Oxley has provided estimates on its development projects launched in Singapore and overseas. They expect about $393m in future progress billings and $732m in gross development value (GDV) in total, with a large majority coming from its overseas properties like Riverscape (in the UK) and Oxley Tower KLCC (in Malaysia). Management has indicated they remain confident that they will be achieve full-sales on their key projects (e.g. Riverscape), which could potentially help to unlock the remaining GDV highlighted above.

In terms of cashflows, Oxley management expects incoming cashflows of $182m just from already-TOPed developments in Singapore over the next 12 months. We also expect further cashflows coming in from overseas projects like the above-mentioned Riverscape and Oxley Tower KLCC, as well as other projects like Trinity Wellnessa (in Malaysia). Management has also emphasised in a recent call that they expect to have enough funds from upcoming TOPs to repay the new bonds when they mature in July 2025.

One key concern for us is Oxley’s total debt levels and overall maturity profile. We mentioned above that Oxley has net debt of about $1.3b with just $50m in cash (i.e. about $1.4b in total debt). In addition, looking at its maturity profile, we note the $837m in investment property (IP) loans (including $684m in the next 12 months), as well as $231m in corporate loans (including $131m in the next 12 months). Management has expressed confidence in refinancing these loans especially given manageable loan-to-value ratios for the IP loans. Our view is that given the size of these loans, investors should continue to see this as a risk until the refinancing has been confirmed.

About the exchange offer

This decision whether to accept the Exchange Offer is solely and absolutely at the discretion of the issuer. In addition, the issuer may issue and offer for sale additional new bonds to investors as part of an Additional New Issue to be decided later in March. The new bonds arising from the Exchange Offer and from the Additional New Issue will be consolidated into a single series and be fungible with each other.

We include an indicative timeline provided by Oxley below (Table 1). In particular, bondholders who wish to participate in the Exchange Offer should note that the deadline is 21 March 2024, 11am SGT. The new bonds will be settled on or about 28 March 2024.

Table 1: Indicative Timeline by Oxley

What should you do?

We continue to think that despite Oxley’s leveraged profile, a default on the existing 2024 bonds remains unlikely, given (i) incoming cashflows from its Singapore projects of $182m, and (ii) especially considering it will be rolling over some of its maturities in this Exchange Offer itself.

Despite the above, the outlook on the new 2025 bonds looks more uncertain. The creditworthiness of Oxley will likely depend heavily on its ability to refinance its IP loans, though management has expressed confidence in doing so thus far. Furthermore, it is likely reliant on the performance and cashflows of its overseas projects in the UK and Malaysia.

Taking these together, our primary recommendation for existing bondholders is to hold onto their 2024 bonds to maturity without participating in the exchange offer. We think the increase in coupons (+35bps from 6.90% to 7.25% p.a.) appears insufficient to justify the additional risks of the new 2025 bonds compared to the existing 2024 bonds. This is especially as the existing 2024 bonds are trading at a significantly higher ask yield (15.8% for full lot, 21.0% for odd lots) relative to this new coupon/yield of 7.25%.

Investors who have a high risk appetite, and who may not have existing positions in Oxley bonds, may also consider purchasing the existing 2024 bonds with the intention of holding to maturity. At the current ask price of 97.25 (95.75 for odd lots), investors can potentially gain a return of about 5.0% (6.6% for odd lots) in just over 3 months, if Oxley successfully repays its existing 2024 bonds.

Investors who do not have too high of a risk appetite may also consider other issuers with better credit fundamentals. We have made several recommendations in our recent articles, such as ESR Group’s ESRCAY 5.100% 26Feb2025 Corp (SGD) for a property bond maturing in 2025, or Thomson Medical Group’s TMGSP 5.500% 31May2028 Corp (SGD) for a non-property exposure yielding over 5.1% (we don’t expect Thomson Medical to exercise its non-mandatory call in May 2024). We advise investors to read our articles below for a more detailed analysis into each issuer and bond.

Related article: Idea of the Week: ESR Group – Finally seeing the impact of higher interest rates?
Related article: Idea of the Week: Can we still expect Thomson Medical Group to exercise the call option?

Table 2: 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 OHLSP 6.900% 08Jul2024 Corp (SGD), ESRCAY 5.100% 26Feb2025 Corp (SGD), and TMGSP 5.500% 31May2028 Corp (SGD). The analyst who produced this report holds a NIL position in the abovementioned securities.

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