• Frasers Property announced a proposed S$1.28bn renounceable rights issue.
• Proceeds to strengthen Frasers Property's balance sheet and enhance business resilience.
• Reiterate ADD with a lower RNAV-based target price of S$1.41.

Frasesrs Property Proposes S$1.28bn Renounceable Rights Issue

• Frasers Property Limited (SGX:TQ5) has announced a proposed renounceable rights issue of up to 1,085.3m new shares at S$1.18 per unit, on a basis of 37 for every 100 existing shares, to raise S$1.28bn of net proceeds. The rights issue is not underwritten.
• Major shareholders, TCC Assets Ltd and Thai Beverage (SGX:Y92), have given an irrevocable undertaking to subscribe for their pro-rata entitlements of the rights shares.
• The rights price represents a 4.8% discount to the last traded Frasers Property's share price, a 3.6% discount to the theoretical ex-rights price of S$1.224 (as at 10 Feb 2021) and a 47.5% discount to the proforma adjusted Dec 2020 NAV of S$2.25 per share.

Enhancing Business Resilience

• According to Frasers Property's management, the rationale for the rights issue is to enhance business resilience through continued exposure in the industrial/logistics/business parks segment, to build financial agility through capital partnerships and to strengthen the balance sheet.
• In terms of utilisation of net proceeds, ~S$700m is intended for the acquisition, investment and capex for the development of industrial logistics and business parks assets. Another S$250m is allocated towards establishment of private funds or joint ventures to invest in property assets (including commercial and ancillary assets) as well as up to a further S$330m for strategic investments, acquisitions, development/redevelopment of existing as well as general corporate expenses.

Proforma Net Debt to Equity Ratio to Decline to 0.81x

• In terms of financial impact, the rights issue is likely to expand Frasers Property’s issued share base by ~37% to 4,018.5m shares.
• The proforma net debt to equity ratio is projected to decline from 1.05x as at Sep 2020 to 0.81x, after adjustment to reflect the rights issue & the relevant transactions.
• Meanwhile, Frasers Property's proforma FY20 earnings per share could be reduced by 13% on a similar basis while proforma FY20 book NAV per share could dip from S$2.58 to S$2.20.

Reiterate ADD Rating

• We lower our Frasers Property's FY21-23F earnings per share estimates to deployment of proceeds into new investments. Accordingly, our RNAV and target price for Frasers Property slide 17% to S$2.57 and S$1.41, based on an unchanged 45% discount to RNAV. Figure 2 in report attached below shows the complete breakdown of Frasers Property's RNAV.
• We view the rights issue as an attractive entry opportunity to participate in the growth prospects of the company. Active capital deployment is a potential upside catalyst. Downside risks are slower value-unlocking activities due to the weaker macro outlook.

Source: CGS-CIMB Research - 11 Feb 2021