Soilbuild Business Space REIT: Preferential Offering to part-finance acquisition of Bukit Batok Connection August 25, 2016

PSR Recommendation: ACCUMULATEStatus: MaintainedTarget Price: 0.79
  • Non-renounceable 1-for-10 Preferential Offering, in conjunction with the acquisition of Bukit Batok Connection from Sponsor
  • Issue of up to 94.35mn New Units at S$0.63 each, to raise gross proceeds of up to c.$59.4mn and a minimum of S$15.1mn
  • Total acquisition cost of S$100.5mn, with the balance to be funded with debt

What is the news?

Soilbuild Business Space REIT (SBREIT) announced the launch of a 1-for-10 Preferential Offering to raise gross proceeds of up to c.S$59.4mn. Up to 94.35mn New Units to be issued in the Preferential Offering at S$0.63 per New Unit. The non-renounceable Preferential Offering is to part-finance the acquisition of Bukit Batok Connection from SB (Westview) Investment Pte Ltd, a wholly-owned subsidiary of the Sponsor, Soilbuild Group. Major shareholder Mr Lim Chap Huat, has committed to take up his pro-rata entitlement of 25.16% which will raise S$15.1mn of new equity. In addition, Mr Lim may subscribe to excess unsubscribed Units, provided that the total number of Units he and his immediate family members own do not exceed 29.3% of the total issued Units following the Preferential Offering.

 

How do we view this?

  • Non-renounceable PO is significantly different from a renounceable RI

For non-renounceable Preferential Offering (PO), provisional allotments of New Units cannot be renounced or traded on the SGX-ST. This is in contrast to a renounceable Rights Issue (RI), whereby the Rights can be traded on the SGX-ST up to the book closure date.

  • EFR through PO is fairer to existing Shareholders compared to RI

New Units created in an equity fund raising (EFR) through the PO will only be as a result of existing Unitholders electing to exercise their allotment. Existing Unitholders will not be able to exercise more than their pro-rata entitlement. This is in contrast to a RI whereby both existing Unitholders and non-Unitholders can trade and exercise the Rights during the cum-Rights period. New Units created in a RI will be as a result of both existing Unitholders and non-Unitholders exercising the Rights, leading to dilution of existing Unitholders by new Unitholders.

  • SBREIT has sufficient debt headroom to fund the acquisition

Minimum equity to be raised will be S$15.1mn; this is from Mr Lim’s commitment to take up his entire pro-rata entitlement. Total equity raised will be between S$15.1mn and S$59.4mn, depending on take-up rate by minority Unitholders. In the extreme case of only S$15.1mn being raised, SBREIT has the ability to fund the remaining S$85.4mn through debt.

  • Price has not adjusted because number of new Units to be created remains unknown

As pointed out earlier, the non-renounceable PO is different from a renounceable RI. For a renounceable RI that is underwritten, the theoretical ex-rights price (TERP) can be determined because the number of new Units to be created is known upfront. This is not the case for the PO, because the number of new units created will only be known after Unitholders have chosen to subscribe to their allocations.

Maintain “Accumulate” rating with unchanged DDM valuation of S$0.79

We are keeping our target price unchanged, pending the outcome of the Preferential Offering, and the capital structure of the acquisition.

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About the author

Profile photo of Richard Leow

Richard Leow
Investment Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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