EC World REIT - RHB Invest 2022-06-27: Onerous Loan Refinancing Terms


EC World REIT - Onerous Loan Refinancing Terms

  • 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. EC World REIT 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.

  • EC World REIT (SGX:BWCU) has currently secured onshore borrowing facilities of S$300m and US$ 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 ~S$100m of loans to be repaid by end 2022.
  • EC World REIT 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.

  • EC World 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 EC World REIT’s negotiating capabilities.

In discussions to sell two assets.

  • Subsequent to the loan extension, EC World 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 (S$265m) and CNY841m (S$178m) for BLS1 and CPL as at end FY21. They account for 16% (BLS1) and 11% (CPL) of total asset value, as well as ~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 S$1.7bn), thereby drying up liquidity and further widening the yield gap vis-à-vis the larger REITs.

NEUTRAL with lower target price

Vijay Natarajan RHB Securities Research https://www.rhbinvest.com.sg/ 2022-06-27
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.55 DOWN 0.650