CapitaMall raises $197 million from three-year CB

The Singapore dollar-denominated deal comes less than 12 hours after ReneSola reopened the Asian CB market following a near two-month dry-spell.

CapitaMall Trust has raised S$250 million ($197 million) from a Singapore dollar-denominated convertible bond, sending a clear message to investors and issuers that Asia’s CB market is back open for business.

The three-year deal launched just 12 hours after US-listed ReneSola became the first Asia-based company to issue a CB since mid-January, but, unlike that deal, which was sold primarily to US investors, CapitaMall’s CB qualifies as a real Asian offering.

As the largest real estate investment trust (Reit) in Singapore and a key member of the CapitaLand group, CapitaMall is a well-known and respected credit, and the deal comes at a time when momentum in the stock has turned positive on the back of an acquisition announcement on March 1.

More important, perhaps, the issuer refrained from being too aggressive — both on size and the overall terms — which made this an almost perfect deal to kick-start the market. It was also a very straight-forward transaction with a short maturity, no complicated structuring and plenty of stock borrow available for investors who wish to hedge the equity option.

Not surprisingly, investors jumped at the opportunity and when the deal closed after less than three hours of bookbuilding, it had attracted S$1.3 billion of demand. This allowed CapitaMall to increase the size of the deal to S$250 million from S$200 million through a partial exercise of the S$100 million upsize option, and ensured continued appetite for the CB in the aftermarket. Shortly after pricing, sources said the bonds were bid at about 100.5 in the grey market.

The demand also enabled the conversion premium to be fixed close to the issuer-friendly end, while the coupon was kept at the best price for investors.

CapitaMall offered the bonds with a coupon and yield of 1.625% to 2.125% and a conversion premium of 20% to 25% over yesterday’s close of S$1.83. Given the short maturity of just three years, there is no put and no call.

The coupon was set at the top at 2.125%, while the conversion premium was fixed at 24% for a conversion price of about S$2.27. The latter is well above analysts’ average target price of S$2.09 and also at a margin over last year’s high of S$2.15, which was reached on the final day of September. CapitaMall’s unit price has been on a declining trend pretty much since then amid general market volatility and expectations of rising interest rates globally.

New supply, in the form of two property trust IPOs in Singapore have also dampened the performance of the entire sector, although one of those IPOs — Perennial China Retail Trust — was postponed this past weekend due to market volatility. The other one, a commercial Reit sponsored by the Temasek-backed Mapletree group, is currently pre-marketing and is expected to launch a formal roadshow on March 21.

Analysts are generally positive on CapitaMall’s recent acquisition of the Illuma mall, however. Offering an entry yield of 3.8%, the asset isn’t immediately yield accretive (CapitaMall trades at a 2011 dividend yield of about 5% to 5.5%, according to analyst estimates), but it is viewed to have growth potential and analysts say it will benefit from being located, and connected to, the Bugis Junction Mall, which is also owned by CapitaMall. The trust currently owns and operates 15 shopping malls in Singapore.

According to a source, the CB attracted a mix of outright investors and hedge funds from Asia and Europe. About 70 investors participated in the transaction and most of them had their orders cut back, which should add to the bid in the secondary market today.

The CB was marketed at a credit spread of 160 basis points and with a stock borrow cost of 50bp. Investors will get compensated for dividend payouts above a 4% yield. Some investors were looking at a tighter credit spread since CapitaMall recently issued two-year Singapore dollar bonds priced at 110bp over Sibor. However, the boorunners argued that the 40bp difference in the yield curve between two and three years warranted a wider spread.

Based on a 160bp credit spread, the final terms translated into a bond floor of 97.8% and an implied volatility of 17.5%. The latter is in line with the 50- and 100-day historic volatility, which suggests that while not too aggressive, CapitaMall wasn’t being overly generous either.

The money will be used partly to refinance an existing S$650 million CB that was issued in 2008 and will become puttable in July. As those bonds are currently trading well out of the money, most of the issue is expected to be sold back to the issuer. However, according to the term sheet, some of the proceeds may also go towards capital expenditure, asset enhancements or investments.

The CB was arranged by Credit Suisse on a sole basis. Sources said the deal was not put out for general bidding by other banks, although CapitaMall had been in discussions with other parties in the months leading up to the transaction.

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