Dasin Retail Trust - Phillip Securities 2021-07-26: Loan Extension And New Strategic Partner


Dasin Retail Trust - Loan Extension And New Strategic Partner

  • Dasin Retail Trust (SGX:CEDU)'s extension of S$516.7mn loan repayment to 19 December 2021 a small reprieve. Could help halt 32% slide in year-to-date share price. Refinancing of loans on longer terms required to return confidence to unitholders.
  • Strategic partnership with ARA terminated in favour of China-focused Sino-Ocean. Sale and purchase agreement between Mr Zhang and Sino-Ocean’s entity, New Harvest, will allow New Harvest to acquire 70% of the Trustee-Manager. Call option by Mr Zhang to Sino-Ocean could increase Sino-Ocean’s stake from 6.36% to 26%.
  • Maintain ACCUMULATE on Dasin Retail Trust and DDM target price (COE 8.12%) lowered from S$0.82 to S$0.78. FY21e/22e DPUs forecast cut by 14.8%/5%/7% for higher borrowing costs. Current price implies yields of 7.4/8.2%.

Dasin Retail Trust - Recent Events

  • 31 Dec 2020:
    • S$516.7mn (55%) of loans due in the next 12 months, resulting in negative net working capital of S$406.7mn.
  • 20 Jan 2021:
    • 6-month extension of loan facility (~S$430.0mn) to 20 July 2021.
  • 14 Apr 2021:
    • Audit Opinion: Unqualified Opnion with emphasis on matter in respect of material uncertainty related to the ability of the Trust and its subsidiaries to refinance their existing borrowings.
  • 21 Apr 2021:
    • Entry into non-binding MOU: Strategic partnership with ARA Asset Management. ARA's investment vehicles to purchase 50% of Trustee Manager and 5% of outstanding share capital from Mr Zhang Zhencheng, Chairman and controlling shareholder of Trustee-Manager and Aqua Wealth.
  • 28 Apr 2021:
    • Response to SGX queries on ability to continue as a going concern due to negative working capital position. The re-classification of long term borrowings to short term borrowings resulted in net working capital of S$407mn. ~55% (S$517mn) of total borrowings will expire in FY21.
  • 29 Apr 2021:
    • Entry into sale and purchase agreement with ARA.
  • 5 Jul 2021:
    • Termination of sale and purchase agreement with ARA and entry into non-binding MOU with Sino-Ocean Capital. Sino-Ocean Capital currently holds approximately 6.36% of the total issued units in the Trust (via its affiliate Glory Class Ventures Limited. Sino-Ocean to acquire 70% of Trustee-Manager and units in Dasin from Aqua Wealth so as to increase its stake in the Trust to no less than 25% of the outstanding share capital.
  • 15 Jul 2021:
    • Entry into sale and purchase agreement between Mr Zhang and Sino-Ocean Capital and granting of call option. New Harvest (affiliate of Sino-Ocean) will acquire 70% of Trustee-Manger from Mr Zhang and will hold a call option to acquire Dasin units from Aqua Wealth to increase Sino-Ocean's stake in the Trust to no more than 26%.
  • 20 Jul 2021:
    • Extension of loan facilities (S$516.7mn) to 19 December 2021.
  • See Dasin Retail Trust's announcements.

What do we think?

Ditching ARA strategic partnership for Sino-Ocean

  • While ARA is a globally renowned real-estate name, a partnership with China-focused Sino-Ocean does have merits like possible synergies in real estate management. Under a recent sales and purchase agreement, the Chairman and controlling shareholder of the Trustee-Manager and Aqua Wealth with a 53% stake in Dasin Retail Trust will sell 70% of the Trustee-Manager to New Harvest, an affiliate of Sino-Ocean Capital.
  • Sino-Ocean Capital acquired 49,700,900 units of Dasin Retail Trust on 30 September 2019 via its affiliate, Glory Class Ventures Limited. This represents 6.36% of the trust’s current outstanding units. Aqua Wealth has also granted a call option with a 1-year validity to New Harvest, allowing it to acquire up to 19.54% of Dasin Retail Trust. Exercise of the option would bring Sino-Ocean’s stake to no more than 26% of Dasin Retail Trust’s total outstanding units. The sale of the 70% stake in the Trustee- Manager is expected to be completed in August 2021.

Background of Sino-Ocean Group

  • Sino-Ocean Capital is a wholly-owned subsidiary of Sino-Ocean Group (3377 HK). Sino-Ocean Group is one of the top 100 property groups in China, backed by two insurance heavyweights, China Life Insurance Company Limited (2628 HK/601628 CH) and Dajia Life Insurance Company Limited. Both hold 29.59% stakes in the group.
  • Sino-Ocean Group is a constituent of the Hang Seng Composite Index, with Baa3 and BBB- ratings assigned by Moody’s and Fitch respectively.
  • Sino-Ocean Group’s core businesses are residential property development, investment property development and operations, property services and whole industrial chain construction services, real-estate financing, senior living services, logistics properties and Internet data centres.

Dasin Retail Trust - Outlook

  • Earlier, loan refinancing might have been hampered by potential changes in the Trustee-Manager’s ownership, which would likely have warranted a reset of Dasin Retail Trust’s credit review process. With Sino-Ocean now holding a 70% interest in the Trustee-Manager and a potentially higher stake in Dasin Retail Trust, Sino-Ocean could support Dasin Retail Trust by extending inter-company loans or a ROFR pipeline.
  • Outlook for Dasin Retail Trust appears more positive, although we await confirmation from key events such as the refinancing of loans maturing on 19 December 2021 and Sino-Ocean’s exercise of share options.

Maintain ACCUMULATE and DDM Target price of S$0.82

Phillip Research Team Phillip Securities Research | https://www.stocksbnb.com/ 2021-07-26