Buyer benefits more in Oxley's $1.025b sale of Chevron House, say DBS analysts

Oxley acquired Chevron House in Raffles Place for $660 million in December 2017.
Oxley acquired Chevron House in Raffles Place for $660 million in December 2017. PHOTO: ST FILE

SINGAPORE - Analysts at DBS Group Research are of the view that the "buyer is the bigger beneficiary" in Oxley's deal to sell Chevron House for some $1.025 billion.

This comes just 16 months after the debt-laden property developer acquired the prime office building in Raffles Place for $660 million in December 2017. Oxley has agreed to sell the 32-storey office tower to Golden Compass, which is wholly owned by US-based real estate fund, AEW.

"Based on the available information and our ballpark estimates, we believe the buyer is the bigger beneficiary of this transaction by acquiring the office component of Chevron House at below 4 per cent cap rates, with reversionary potential close to 5 per cent cap rates.

"This has yet to factor in any potential plot ratio upside from the government schemes to incentivise the redevelopment of the central business district," DBS analysts Rachel Tan and Derek Tan highlighted in a research note on Thursday morning.

A property's "cap rate" or capitalization rate is measured by dividing its net operating income (NOI) over its current market value.

However, the analysts noted that while Chevron House has been sold, a few conditions are attached to the sale.

Among other things, Oxley will receive an initial $210 million, with the remaining transaction to be settled after the completion of asset enhancement works, and the divestment of the retail and banking units, which fall under Oxley's responsibilities, the analysts said.

They also noted that the initial cash proceeds of $210 million will facilitate Oxley's repayment of its first tranche of retail bonds of $300 million expiring on Nov 5, though certain deal terms have not been revealed.

"The devil is in the details, but the terms attached between Oxley and the buyer with regard to the divestment of the retail and banking units, and any other terms and conditions are not made known. If we assume that the first tranche of payment is potentially the maximum gain or cash proceeds to be received by Oxley for the sale of Chevron House, we believe the cash received will alleviate some of Oxley's urgent cash requirements, though not completely," the analysts said.

The Business Times understands that the initial payment of $210 million will be the maximum cash proceeds that Oxley will receive under this deal.

"There will be further deleveraging when the buyer assumes Chevron House's bank loans upon completion of the transaction when conditions are met," the analysts added.

BT reported on May 1 that the buyer will take over the $450 million in borrowings which Oxley had taken out to finance its 2017 acquisition of Chevron House. The sale will thus reduce Oxley's debt by that amount.

Oxley has two tranches of retail bonds expiring: $300 million due on Nov 5, 2019, and $150 million due on May 18, 2020. Aside from the retail bonds, it also has $238 million of corporate borrowings expiring in fiscal 2020/2021, and $631 million of euro medium-term notes expiring in fiscal 2021/2022.

As at 11.45am on Thursday, Oxley shares were trading at S$0.32, down 1.5 per cent or 0.5 cent. The company has a market cap of about 1.34 billion as of May 2.