Oxley launches new 3Y SGD bond at 6.75% IPG

Oxley Holdings Limited (“Oxley”) is launching a three-year bond at an initial price guidance (“IPG”) of 6.75%. Recently, we dialed in to a fixed income investor conference call to find out more details about the new issue and the company’s latest financials.

Oxley MTN Pte Ltd is the issuer of the bond. The parent company Oxley unconditionally and irrevocably guarantees the due payments of the note. Holders of the senior unsecured bond will have the option to put the bonds back to the issuer in the event of a change of control (at 101) or cessation of trading (at par), as specified in the bond’s offering documents. The size of the issue is capped at S$100m.

Brief overview of Oxley and portfolio

In the years since going public in October 2010, the Oxley group expanded its presence from Singapore to over nine geographical markets including the United Kingdom, Ireland and Australia. Oxley has established a reputation of building quality homes and commercial developments. The three main principal business activities of the firm are 1) real estate development, 2) property investments and 3) hospitality.

According to the company, the group had a land bank of approximately 495,000 square meters (“sqm”) that may be used for future development. As at 31 Dec 19, Oxley recorded 17 property development projects in the pipeline, in Singapore and other countries. Collectively, the estimated gross development value of the portfolio added to a total value of S$23 billion.

If the opportunity arises, Oxley acquires investment properties to provide recurring income to the firm. In addition to property investments, the group holds an 18.8% interest in Galliard, a leading UK property developer, and Pindan, an Australian property construction company that would soon become a wholly-owned subsidiary of the group.

Recurring income from investment properties

The positive aspect of Oxley’s property investment business is that the company has made strides in strengthening its recurring income base from these assets. Referring to details in the recent roadshow presentation, recurring income increased by nearly eight times to S$77.5m between FY16 and FY19. Recurring income to the group stems from a variety of sources within the portfolio. These include tenants at 1) Space@Tampines, 2) eleven retail units from the hotels along Stevens Road, 3) 29 retail units in The Rise @ Oxley, 4) 26 retail units in Floravista and 5) room bookings in the Novotel and Mercure hotels.

Oxley is expanding its hospitality portfolio to include three hotels under development, namely SO Sofitel Kuala Lumpur Hotel in Malaysia, and Shangri-La Hotel in Phnom Penh, Cambodia. Shangri-La Cambodia and SO Sofitel Kuala Lumpur will start receiving guests in 2021 and 2022 respectively. Additionally, Oxley plans to build a hotel in Limassol, Cyprus, which has seen a record number of tourist arrivals in January.

Financial highlights — income statement

In the six months ended December 2019 (“1HFY20”), group revenue increased by 13% YoY to S$594m. The improvement in sales resulted from development projects in Singapore and Dublin, as well as positive contributions from the Australian subsidiary. Total revenue is likely to continue increasing given the recent upward momentum in secured sales (Figure 1) and improved real estate sentiment.

Net profit dropped from S$34m in 1HFY19 to S$13m in 1HFY20, on the back of a 135% YoY increase in administrative expenses. This was because of higher consultancy fees incurred in overseas projects and the inclusion of three-month expenses from Pindan Group, following the consolidation of the Australian subsidiary.

Figure 1: Attributable secured sales

Our projections of Oxley’s future cash flows are laid out in Figures 2 and 3, which should be interpreted in conjunction with the information in Table 2. After 2021, we assume that Oxley would receive project revenues from the company’s developments scheduled to be completed in 2022, which should be sufficient to cover its project debt and bonds. In addition, Oxley should be able to refinance loans associated with the Novotel and Mercure hotels.

Figure 3: Debt maturity schedule in 2022 and beyond

One caveat to our cash-flow estimates is that pre-sales contracts may be subjected to buyer cancellations and forfeitures, both of which may be driven up by a sharp deterioration in the macro environment. Customer deposits forfeitures were S$757,000 in FY18 but more than doubled to S$1.7m in FY19. At the moment, we do not view the recent increase in the level of forfeitures as a point of concern yet, but we will monitor its trend moving forward.

Oxley’s development portfolio as at 31 Dec 19

Table 2: Residential and commercial projects

Project	Location	Expected number of residential units	Expected number of other units	Units sold (%)	Attributable future progress billings	TOP
1953	Singapore	58	14 shops	64	S$44m	4Q21
Affinity at Serangoon	Singapore	1,052	5 shops	64	S$235m	3Q22
Mayfair Gardens / Mayfair Modern	Singapore	386	-	56	S$287m	4Q21
Riverfront Residences	Singapore	1,472	6 shops	83	S$305m	3Q22
Kent Ridge Hill Residences	Singapore	548	-	51	S$266m	4Q21
The Verandah	Singapore	170	-	99	S$164m	4Q20
The Addition	Singapore	26	-	100	S$17m	2Q20
Sea Pavilion Residences	Singapore	24	-	100	S$19m	1Q20
Sixteen35 Residences	Singapore	60	-	98	S$38m	4Q20
Royal Wharf – Phase 1A	North Woolwich, London	1,333	-	99	S$367m	2020
Royal Wharf – Phase 2	North Woolwich, London	1,146	-	97		2020
Royal Wharf – Phase 3	North Woolwich, London	965	-	84		2020
Dublin Landings	72 to 80 North Wall Quay, Dublin	273	N.A	100	S$123m	2020*
The Peak – Phase 1	Phnom Penh	507	-	89	S$214m	2020 – 2021
The Peak – Phase 2	Phnom Penh	507	-	98		2020 - 2021
The Peak retail mall	Phnom Penh		150 shops	75		2020 – 2021
The Peak office units	Phnom Penh		250 offices	100		2020 - 2021
The Palms - Villas	Mean Chey District, Cambodia	16		100	S$24m	2020
The Palms – cluster housing	Mean Chey District, Cambodia	204		25		2020
The Bridge	Chamkarmorn District, Cambodia	2,477		97	S$6m	4Q18
Oxley Towers Kuala Lumpur (residential)	Malaysia	590		17	S$114m	2021
Gaobeidian	Hebei, China	15,800		24	S$7m	TBA
INSPACE	Singapore		84 Light industrial units	14	S$11m	4Q21
Total					S$2241
Source: Company, iFAST compilation

Bond valuation

In view of Oxley’s lower gearing and manageable liquidity profile, we think that the company’s new three-year note is attractively priced at the IPG of 6.75%. This represents a pickup of 95 basis points over the OHLSP 5.700% 31Jan2022 Corp (SGD) (ask yield to maturity (“YTM”): 5.80%), and provides good value, in our view, among peer credits of similar maturities (Figure 4).

Figure 4: Bond valuation

Oxley has a track record of ramping up leverage quickly to take advantage of market opportunities, then de-gearing and paying down debt with sales proceeds. With this new issuance of up to S$100m, Oxley should not have difficulty paying off the S$150m OHLSP 5.150% 18May2020 Corp (SGD) - Retail, which is trading at a YTM of 3.42%.

Although the 6.75% IPG may be lower than bonds of Perennial Real Estate Holdings Ltd (“Perennial”) and Aspial Treasury Pte Ltd (“Aspial”), we think the credit quality of the latter two issuers are weaker than Oxley. We had elaborated on Aspial’s issuer profile in a recent credit update — see “Aspial Corp: Credit Update 20 Jan 2020”, while Perennial is facing tight liquidity and low operating cash flows. We are monitoring Perennial’s refinancing and debt repayment progress as the group recorded S$120m of cash against short-term debt of S$1.3 billion in its recent filing.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) has principal positions in OHLSP 6.375% 21Apr2021 Corp (USD), OHLSP 5.150% 18May2020 Corp (SGD) – Retail and PREHSP 4.550% 29Apr2020 Corp (SGD) - Retail. The analyst who produced this report hold a NIL position in the abovementioned securities.