Chinese cornerstones aid BHG Retail Reit IPO

Singapore Reit follows the example of recent Hong Kong IPOs by locking its prospective flotation away with cornerstone investors.
Is BHG creating a buzz?
Is BHG creating a buzz?

Beijing Hualian Group (BHG) has launched roadshows and bookbuilding for a Singapore Reit initial public offering a few days later than scheduled after spending additional time pinning down cornerstone investors.

The Chinese retail mall owner has followed the example set by many recent Hong Kong IPOs and locked much of its prospective flotation away with cornerstone investors from the mainland. 

It is probably a sensible strategy given the difficult market environment for all Singapore-listed Reits, which have been on a falling trend since late October as expectations for US rate rises in December grow stronger.  

The deal also has a punchy valuation compared to its larger and longer established comparable, CapitaLand Retail China Trust (CRCT), which has put some fund managers off. Sole sponsor DBS has launched marketing on a fixed price of S$0.80 per unit, equating to a forward 2016 dividend yield of 6.3%. 

This is significantly more aggressive than CRCT, which is currently trading on a forward yield of 7.7% after falling 6.3% since pre-marketing began for BHG Retail Reit earlier in November.

However, the deal does not have a particularly high hurdle to cross since so much of it has already been tucked away. According to a termsheet seen by FinanceAsia, a group of four cornerstones will take a total of S$135.7 million ($96.21 million), or 169.65 million units, representing 53% of the deal.

They include China Hi-Tech Holdings on 41.667 million units, China Life Insurance on 46.97 million units, China Merchants Bank Asset Management on 37.5 million units and Dr Chanchai Ruayrungruang on 43.5 million units.

This leaves only S$120.1 million or 150.127 million units to be distributed through the international placement tranche and Singapore public offer. 

Post listing, the freefloat will stand at 64.9%, with the sponsor Beijing Hualian Department Stores owning 5% and strategic investor Beijing Hualian Group International on 30.1%. The latter also holds a 29.58% stake in the sponsor. 

There is also a greenshoe of S$19.71 million or 24.636 million units, which accounts for 16.4% of the base deal. The deal also has a six-month lock-up covering all units owned by the sponsor and BHG units, followed by a second six-month lock up covering 50% of all units.

One key aspect for investors is the fact that the strategic investor will not take up its dividend entitlement in varying degrees through to 2020. This has the effect of boosting the upfront dividend yield from what would have otherwise been an even more aggressive 4.4%.

"In order to want to buy this deal you really have to believe they will be able to grow the asset base through injecting properties held by the parent," a Reit specialist told FinanceAsia.

However, the fund manager also added: "One thing I do like about this deal is the fact that it is a Chinese company listing in Singapore rather than Hong Kong. It means they have to play by the Singapore rule book and that is always more comforting."

Visible pipeline

In the deal's favour is its highly visible pipeline of potential acquisitions, which could potentially triple the size of the listed vehicle. This comprises 11 malls with a gross floor area (GFA) of 620,038 square metres.

Overall, BHG owns or manages 45 malls across China. The listed vehicle will initially encompass five key assets: Beijing Wanliu Mall, Hefei Mengchenglu Mall, Chengdu Konggang Mall, Dalian Jinsanjiao property and Xining Huayuan Mall. It also has joint ventures with UK companies Costa Coffee and Clarks Shoes. 

The five have a GFA of 263,668.8 square metres and a purchase consideration of S$573.1 million. Their annualised weighted average lease to expiry (WALE) was 9.9 years as of August, while their annualised occupancy rate was 99.4%. 

If the deal is completed, it will mark the first main board listing of the year in Singapore and the first Reit listing. Earlier in the summer, Canadian financial services group Manulife pulled an S$569 million IPO on its pricing day after market conditions deteriorated.

International roadshows and bookbuilding for BHG Reit will run through to November 27, with the Singapore public offering set for December 2 to 7. Allocations will be finalised on December 7 and listing is scheduled for December 11. 

DBS is sole sponsor.

¬ Haymarket Media Limited. All rights reserved.
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