This article first appeared in The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017
IOI Properties Group Bhd’s issuance of 1.11 billion rights shares on March 28 was the second largest secondary offering on Bursa Malaysia to date. The cash call also helped the group finance its first venture into the coveted Marina Bay financial district in Singapore.
At an issue price of RM1.38 per rights share, on the basis of one rights share for every four ordinary shares held, the exercise, announced on Nov 18 last year, raised RM1.52 billion for IOI Properties.
The issue price was at a discount of about 30% to the theoretical ex-rights price of IOI Properties’ shares of RM1.98 per share. The rights issue received an overwhelming response from shareholders — it was 36.7% oversubscribed. AmInvestment Bank was the principal adviser for the deal.
The funds raised were used to reduce the borrowings the group obtained to fund its S$2.57 billion tender for a 1.09ha plot in the Marina Bay district, which translated into expected interest savings of RM18 million per annum.
The tender consideration amounted to S$1,689 psf (computed based on maximum permissible gross floor area for the land of 141,294 sq m or 1.52 million sq ft), according to IOI Properties’ circular to shareholders on the proposed ratification of the land tender and rights issue.
“In this respect, the company had taken note of the recently transacted Qatar Investment Authority’s purchase of the 99-year leasehold Asia Square Tower 1 for S$3.4 billion from BlackRock in June 2016, which translates into about S$2,700 psf,” the circular read.
The exercise has allowed IOI Properties to venture into the prime office tower market in Singapore’s central business district.
While the company says it has yet to finalise details of the development to be undertaken on the plot, the preliminary proposal entails a Grade A Green Mark Platinum prime office development with commercial spaces. There could be two office towers — one with 16 or 18 storeys and the other a 40 or 45-storey block — on a five-storey podium, with a net saleable or lettable area of 124,338.72 sq m.
The group estimated the project would cost S$4,400 per sq m to build, excluding land acquisition cost. This translates into S$3.12 billion gross development cost.
According to Savills, the development could have a gross development value of S$4.25 billion or S$34,176 per sq m (S$3,175 per sq ft). The project will be developed together with Hong Kong Land International Holdings Ltd.
“[The land is] an attractive addition to IOI Properties’ investment properties. The development on the land is expected to attract major financial institutions and multinational corporations, which in turn [will] contribute positively to the group’s future revenue stream and profitability,” says AmInvestment Bank.
Separately, Mah Sing Group Bhd’s RM1 billion senior perpetual securities programme rates a notable mention in the non-IPO fundraising category.
Established on March 3, the programme is a structured debt instrument that allows the property developer to efficiently manage its capital and debts.
The first issuance of the debt securities was for RM650 million, completed on April 3. It was arranged by CIMB Investment Bank as the sole principal adviser, sole lead arranger and sole lead manager. It was the largest ever unrated perpetual securities to be issued in ringgit.
The perpetual securities have an initial coupon rate of 6.9% per annum for the first five years, which will be stepped up every five years, with the highest being 15% per annum from Year 11 onwards.
It marked the second issuance of perpetual securities Mah Sing has undertaken, with the first being a RM540 million bond in April 2015 at an initial coupon rate of 6.8%.
The debt instrument is structured to be classified as non-dilutive equity for accounting purposes. It is a cheaper form of long-term fixed-rate funding.
While the securities are designed to behave like equity with its perpetual tenor and the issuer’s full discretion to defer payments, it includes many investor-friendly features such as security in the form of unencumbered properties and cash, gradual build-up of sinking funds, as well as step-up coupon rates.
These features were tailored to balance the need for investor protection and interests, as well as maintaining the issuer’s objective to have discretion for payment deferment and achieving the accounting equity classification.
Proceeds from the programme will be used for landbanking and working capital, as well as accelerating construction on projects with good take-ups in order to expedite the collection expected from final-stage billings on delivery of vacant possession of properties.
In a March 7 research note commenting on the issuance of the perpetual securities, Kenanga Research analyst Sarah Lim says Mah Sing is expected to deliver a total of RM607 million worth of properties with vacant possession.
The proceeds raised put Mah Sing in a net cash position as at end-September, with its cash, bank balances and investment in short-term funds amounting to RM1.26 billion. At the time, its non-current and current term loans totalled RM809.25 million, while short-term borrowings stood at RM5.95 million.
Mah Sing is now on a landbanking drive after a two-year break, and has allocated RM1 billion for the endeavour.
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