Financing offer for A-Reit's perpetual bonds

Maybank Kim Eng is providing financing for Ascendas Real Estate Investment Trust's (A-Reit) subordinated perpetual securities, which pay a distribution rate of 4.75 per cent.

Retail investors can borrow up to 70 per cent of their investment at 1.88 per cent, a spokesman said.

HSBC Institutional Trust Services, as trustee of A-Reit, issued $300 million worth of subordinated perpetual securities, which are rated a definitive Baa2 by Moody's. It declined to provide details of the subscription, which was priced on Oct 5 and settled on Wednesday.

Market participants say the launch banked on expectations that the US Federal Reserve may hold off raising interest rates because of the strong dollar, still low inflation and weak economic growth globally.

Brokers say it is the offer of leverage that helped make the A-Reit's bond yield more attractive. For instance, an investor who invests $250,000 cash would receive $11,875, based on a distribution rate of 4.75 per cent. Assuming the investor takes up a maximum of 70 per cent financing, or borrows $175,000 at 1.88 per cent, he will pay interest of $3,290 and end up with a dividend of $8,585. That works out to a yield of more than 11 per cent on $75,000 of his out-of-pocket investments.

Market participants say the launch banked on expectations that the US Federal Reserve may hold off raising interest rates because of the strong dollar, still low inflation and weak economic growth globally.

Maybank Kim Eng said the take-up rate for financing is "below expectation". "The 1.88 per cent rate is our fixed-income financing programme, which is not pegged against the three- month Singapore interbank offered rate. But this rate is subject to change," the spokesman said.

A-Reit, which has been assigned an "A3" issuer rating, recently announced a proposal to acquire a portfolio of 26 logistics properties in Australia for A$1 billion (S$1 billion). This would be financed with Australia onshore loans and perpetual securities.

OCBC Investment Research, which upgraded its call from "hold" to "buy", said the deal could help A-Reit "diversify its income stream and tenant base and make it the eighth-largest industrial landlord in Australia".

Citigroup, ANZ, Credit Suisse, DBS Bank, HSBC and OCBC Bank were appointed joint lead managers and bookrunners.

A version of this article appeared in the print edition of The Straits Times on October 16, 2015, with the headline 'Financing offer for A-Reit's perpetual bonds'. Print Edition | Subscribe