Banks eagerly await the mandate for Link REIT bond

Hong Kong largest property trust is set to mandate a dual tranche bond offering early this week, but the market must first wait until the Link REIT decides which deal it wants to bring.
Hong KongÆs Link Real Estate Investment Trust (Link REIT) is expected to mandate a dual currency bond offering worth upwards of $750 million this week, with some speculating that it could come as early as Monday (July 10).

However, according to bankers who are involved in the pitching process, Link REIT was still evaluating respective sizing and maturity as of Friday. Although most expect the deal to consist of dollar and Hong Kong dollar notes, the borrower has yet to establish the respective proportions of the individual tranches. Indeed, it is far from certain that it will include a US dollar tranche.

If it does, the market is expecting any dollar tranche to be in the five to seven year maturity range, with the domestic tranche in the two to three year space.

It is an interesting dilemma for Hong KongÆs largest property trust. The companyÆs only cash inflow is in Hong Kong dollars and a larger domestic deal would ease any respective currency mismatch. Additionally, Link REIT could arguably price any domestic deal somewhat tighter than a comparable dollar deal.

However, the offshore deal will allow the borrower to price further down the curve, as Hong Kong dollar investors are primarily short-term focused. Furthermore, an offshore deal will heighten the companyÆs international exposure, and widen its overall investor base which would bode well for any future funding needs.

The mandate for this deal is likely to be very competitive, considering the recent dearth of deals in the market.

Banks that have well established offshore distribution networks will likely be pitching for a larger dollar deal. Likewise, banks that are more suited to sell deals domestically will be hoping for a larger Hong Kong dollar trade.

In November, Link REIT completed a HK$12.5 billion ($1.6 billion) bridging loan underwritten by Hang Seng Bank and HSBC. It has also mandated Bank of China, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Calyon, DBS Bank, HSBC and Standard Chartered to arrange a loan which has recently been upsized to HK$5.5 billion ($700 million).

Last week, in its first earning report, Link REIT announced HK$467 million ($67 million) in distributable income û meaning its dividend will be 10% higher than preliminary forecasts expected.

Link REIT has been assigned a rating of A3/A by Standard & PoorÆs and MoodyÆs respectively.
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