IFR Asia – July 06, 2019

Singapore

reviews REIT

gearing rules

3INGAPOREûISûCONSIDERINGûAûRELAXATIONûOFû

the 45% gearing limit on locally listed real

estate investment trusts to give them more

mEXIBILITYûTOûACQUIREûASSETS

The Monetary Authority of Singapore last

Tuesday launched a consultation paper on

raising the leverage limit to 50%, along with

the introduction of a minimum interest

coverage ratio.

The central bank is also proposing to ease

equity fundraising for REITs by removing

the requirement to obtain a “restricted

scheme” status when making a share offer to

accredited and other investors.

“It is a positive move,” said one debt

origination banker. “It is not a big increase

in the [gearing] limit but it will help a REIT’s

lNANCIALûmEXIBILITYûWHENûITûISûBIDDINGûFORû

a foreign asset that needs to be funded,

especially against any foreign rivals that do

NOTûFACEûANYûLIMITSûORûBENElTûFROMûHIGHERû

limits, or against private equity funds.”

Singapore and Hong Kong both impose

a 45% gearing cap on REITs while Malaysia

has a slightly higher 50% limit. In Thailand,

investment-grade REITs can gear up to

60%, while Belgium, Germany and the

Netherlands have limits of 60%–66.25%. REITs

in the US, Canada, Australia, France and

Japan face no such restrictions, while those

in the UK are only subject to a minimum

INTERESTûCOVERAGEûRATIOûOFûX

MORE FLEXIBILITY

REIT sponsors in Singapore have argued for

MOREûmEXIBILITYûTOûRAISEûFUNDSûVIAûDEBTûRATHERû

than through the equity markets.

“Funding through debt – either through

bonds or loans – is cheaper and faster than

EQUITYûANDûTHATûmEXIBILITYûISûNEEDEDûWHENû

the REIT is competing for overseas assets,”

said the banker. “The REIT can issue bonds

many times a year, but you can’t issue that

many units whether through public or

private placements as that is very dilutive to

shareholders.”

The MAS is asking for views on increasing

the leverage limit to 50% with the addition

OFûAûMINIMUMû)#2ûOFûXû)TûISûALSOûASKINGû

whether REITs that have showed good

lNANCIALûDISCIPLINEûSHOULDûBEûALLOWEDûTOû

leverage further to 55%.

Speaking before the launch of the

consultation paper, Jerry Koh, secretary of

the REIT Association of Singapore, said at an

industry meeting that a higher gearing ratio

was required to allow local REITs to buy local

and overseas assets. Koh said there had been

190 REIT-related M&A transactions totalling

S$12bn (US$8.8bn) in Singapore in the last 18

MONTHSûANDûTHATûTHEûNUMBERûWASûEXPECTEDûTOû

keep growing.

However, analysts do not think the city’s

generally conservative REITs will go on a

debt binge. Credit analysts said the majority

of S-REITs maintain a 5% buffer with gearing

RATIOSûATûûANDû)#2SûOFûABOVEûX

For that reason, ECM bankers are not

worried that the proposed gearing change

will stop equity sales. Follow-on offerings

from REITs make up the bulk of equity

issuance volumes in Singapore.

44 REITs and business trusts are listed on

3INGAPOREû%XCHANGEûMAKINGûITûONEûOFûTHEû

most active markets for this instrument in

the world.

The central bank’s proposals come four

People

&Markets

Who’s moving where...

„ BANK OF AMERICA

MERRILL LYNCH has

appointed Peter

Guenthardt co-

head of Asia Pacific

investment banking.

Guenthardt, who will

continue to serve as

country executive

for Singapore and

South-East Asia

until a successor

is appointed, will

relocate to Hong

Kong.

He reports to Jiro

Seguchi, head

of APAC global

corporate and

investment banking,

and Jack MacDonald

and Thomas Sheehan,

co-heads of global

investment banking,

in his new job.

Alex To is the other

co-head of APAC

investment banking.

„ Yip Kit Weng,

head of investment

banking for Malaysia

at NOMURA, is leaving

the bank, people with

knowledge of the

development have

said.

Based in Kuala

Lumpur, Yip is

likely to join a local

investment bank.

Yip joined Nomura

in 2014 from RHB

Investment Bank,

where he was director

for corporate and

investment banking

services. He has

also worked at CIMB

Investment Bank as

head of equity capital

markets.

Nomura declined to

comment.

Morgan Stanley

nears China JV

control

Morgan Stanley’s partner in its Chinese

securities joint venture has put a 2% stake up

for sale, paving the way for the US bank to

take majority control.

(UAXINû3ECURITIESûWILLûSELLûûFROMûITSû

51% shareholding in MORGAN STANLEY HUAXIN

SECURITIES in an auction process that runs until

*ULYûûACCORDINGûTOûAûlLINGûONûTHEû3HANGHAIû

5NITEDû!SSETSûANDû%QUITYû%XCHANGEûLASTû

Tuesday.

Morgan Stanley is looking to increase its

stake in the JV to 51% from 49%, subject to

regulatory approval.

UBS last year increased its stake in its

Chinese securities joint venture, UBS

Securities, to 51% through a similar process.

In that case, UBS completed the acquisition

less than three months after the vendors

announced an auction process.

Morgan Stanley is likely to receive

regulatory approval for the majority stake

in the second half of this year, Reuters

reported last month, citing people with direct

knowledge of the matter.

Morgan Stanley is one of many

international banks seeking either to acquire

AûMAJORITYûSTAKEûINûEXISTINGû*6SûORûTOûSETûUPû

NEWûSECURITIESûlRMSûINûWHICHûTHEûFOREIGNû

partner holds a 51% stake, after foreign

ownership rules were eased last year.

In April, Credit Suisse agreed with its

partner Founder Securities to acquire a 51%

interest and is currently awaiting regulatory

approval. JP Morgan and Nomura have also

received preliminary approval to set up JVs