RHB Investment Research Reports

Author: rhbinvest   |   Latest post: Thu, 18 Aug 2022, 10:03 AM


EC World REIT - Onerous Loan Refinancing Terms

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  • Keep NEUTRAL, new SGD0.55 TP from SGD0.65, 0% upside. EC World REIT’s recent refinancing outcome was disappointing – it was only granted a temporary extension with an added condition of paring down 25% of offshore facilities by end 2022. ECWREIT has since entered into a MoU with a sponsor to divest two assets, which should result in a dividends drop and size reduction. With this news in the price, we see limited catalysts – except for the REIT’s possible privatisation.
  • Loan extension terms indicate banks’ concerns over China assets. ECWREIT has currently secured onshore borrowing facilities of SGD300m and USD 87m (due June). It has entered into an amendment & restatement agreement to extend the maturity date of the offshore facilities to 30 Apr 2023, but this comes with a condition: 25% or c.SGD100m of loans to be repaid by end 2022. ECWREIT also has onshore borrowings of CNY907m that are due for refinancing this month – except a CNY64m portion of debt that expires in Jul 2029 – and is currently in talks to extend the maturity till Apr 2023. These onerous refinancing terms come despite repeated earlier management assurances that banks remain supportive. It also indicates a widespread impact of the Chinese Government’s policy measures in the real estate sector. It could have a possible ramifications on other Chinese listed S-REITs in Singapore that have debts to be refinanced, in our view.
  • Interest costs likely to inch higher. The REIT did not provide data on the likely updated refinancing costs, but we expect it to be 30-100bps higher than existing blended interest rates of 4.2% pa. More importantly, we believe the maturing of the all the loans at the same time continues to pose future risks and limits ECWREIT’s negotiating capabilities.
  • In discussions to sell two assets. Subsequent to the loan extension, the REIT announced a non-binding MoU for sale of Beigang Logistics Stage 1 (BLS1) and Chongxian Port Logistics (CPL) to a sponsor. These assets were valued at CNY1,251m (SGD265m) and CNY841m (SGD178m) for BLS1 and CPL as at end FY21. They account for 16% (BLS1) and 11% (CPL) of total asset value, as well as c.30% of total income. While a sale at book value could lighten the gearing, which stands at 37.3%, we think it will further decrease the REIT’s size (currently at SGD1.7bn), thereby drying up liquidity and further widening the yield gap vis-à-vis the larger REITs.
  • We cut our ESG score by two notches to 2.4 out of 4 on lower transparency and governance scores. As this score is six notches below the country median, we apply a 12% discount to the DDM-derived TP. We have also lowered our FY22F-24F DPU by 6-8%, factoring in higher interest costs and the slowing economy. We have also raised our COE assumptions by 50bps to factor in increased company and macro risks.

Source: RHB Research - 27 Jun 2022

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Chart Stock Name Last Change Volume 
EC World Reit 0.55 -0.005 (0.90%) 90,700 

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