Brokers' take

City Developments | Buy

Dec 17 close: S$9.84

DBS Group Research, Dec 17

CITY Developments Ltd (CDL), Blackstone and CIMB will form a new investment platform to acquire the cashflows and future distributions of Quayside Collection. The transaction will raise S$1.5 billion through the creation of: (i) S$750m of profit participation securities (PPS) and (ii) S$750m in new debt facilities. PPS investors will be paid a coupon of 5 per cent per annum for a five-year tenure.

Through this transaction, CDL would have substantially passed on the risk/reward of future sales at Residences at W - Sentosa Cove, which it found difficult to move volumes after the cooling measures. The transaction is net positive on CDL: (i) pricing is attractive and allows CDL to extract value amidst weakening buyer sentiment; (ii) gearing improves to about 0.25 times and provides CDL with an opportunity to redeploy the capital to other projects with higher returns; and (iii) potential special dividend of up to 36 Singapore cents if it chooses to reward shareholders. Upgrade …