Singapore Reits face credit ratings pressure: Moody’s

Source : Business Times - 23 May 2008

They are affected by tighter conditions for borrowing

SINGAPORE’S real estate investment trusts’ (Reits) credit ratings will face pressure in the next 12 to 18 months because of their rising difficulty in raising funds from debt and equity markets, according to Moody’s Investors Service.

Moody’s has cut or put on review for possible downgrade the ratings of Allco Commercial Real Estate Investment Trust, Macquarie MEAG Prime Reit and CapitaCommercial Trust in the first quarter to reflect growing risk to the debt of the trusts.

‘Tighter conditions for borrowing has adversely affected both the availability and price of credit at a time when a number of Singapore Reits face imminent refinancing needs,’ Moody’s analysts led by Singapore- based Kathleen Lee write in a report.

‘In addition, the depressed unit prices of many trusts have reduced the attractiveness of equity funding.’

Unit prices of Singapore’s Reits have slumped to trade at 15 per cent to 30 per cent of their net- asset values, according to the rating assessor. Mapletree Logistics Trust, which owns industrial buildings, called off a plan to raise as much as $500 million through a rights offer in January because of volatile market conditions.

Singapore’s Reits are also paying more to get bank loans or sell bonds as the commercial mortgage- backed securities market remains shut.

In the first quarter, banks in Singapore raised interest spread by between 0.5 and one percentage point for short-term or refinancing loans, Moody’s said.

‘Many Singapore Reits are relying more heavily than in the past on bank lending,’ the analysts write.

‘Previously, some Singapore Reits had not spent sufficient time cultivating strong bank relationships because, in the past, they had enjoyed easy access to equity and commercial mortgage-backed securities funding.’

CapitaMall Trust and CapitaCommercial, both managed by CapitaLand Ltd, South-east Asia’s biggest developer, have sold six bond deals this year, raising a total of $1 billion at yields ranging from 2.8 per cent and 3.2 per cent, data compiled by Bloomberg show.

Suntec Real Estate Investment Trust, controlled by Hong Kong billionaire Li Ka-shing, raised $270 million from a five-year convertible bond sale in February, paying a 4.25 per cent yield, compared with its average financing cost of 3.1 per cent in 2007, Moody’s said.

Smaller Reits are becoming increasingly likely to be acquired by their bigger rivals in the remainder of the year because of limited access to funding, according to Moody’s.

‘Such a consolidation would leave a sector with the bigger entities having greater financial capacity to expand abroad,’ the analysts say. - Bloomberg