Following the success of a $175 million convertible for ST Assembly last week, the Singapore Technologies group has returned to the equity linked markets with an S$350 million ($191.48 million) issue for 60.6% owned subsidiary CapitaLand.
The five-year deal represents the first meaningful transaction to be denominated in Singapore dollars. Previous to this, there has been just one small tranche of local currency paper issued back in 1999 as part of the Finlayson Global exchange offering on behalf of the government into DBS Bank. The amount raised, however, only came to S$30 million ($17 million).
Led by JPMorgan with no other syndicate, books for CapitaLand's deal are expected to close by the end of Asian trading today (Thursday). Terms incorporate a par in par out structure and comprise a 0.25% to 0.75% coupon and 27% to 32% conversion premium. There is three-year hard no call thereafter subject to a 130% hurdle and a three-year put at par.
Underlying assumptions comprise a bond floor of 89.4% to 88%, fair value of 105.2% to 102.2% and implied volatility of 30% to 35%. This is based on a credit spread of 180bp over Sibor, dividend yield of 1.5%, stock borrow fee of 0.75% and volatility assumption of 45%.
Since its establishment in November 2000 as a result of a merger between Pidemco Land and DBS Land, the company has developed a reputation for being an innovator in the Singapore capital markets. In June 2001, for example, it became the first local company to launch a rated securitization with an S$200 million deal. Then in November last year, it attempted and very publicly failed to establish a domestic REIT market (real estate investment trust) with an S$740 million transaction under the aegis UBS Warburg.
Year-to-date CapitaLand's stock is up 1.07%, but has returned minus 13.33% over the past year in a reflection of a depressed property market and overvalued portfolio. One of management's key long-term aims is to reduce the company's large S$18 billion asset base by selling off low-yielding assets in order to improve ROE and reduce gearing.
During 2001, the company sold down S$1.7 billion in assets, but for the Financial Year ended December 31, posted a net loss of S$275 million ($150 million). This was largely the result of provisions totaling S$747.2 million and a revaluation deficit of S$424.9 million, which was charged to reserves.
With a net debt position of S$6.88 billion, gearing currently stands at 87%.