'Buyer the bigger beneficiary' in Oxley's S$1.03b sale of Chevron House: DBS analysts

ANALYSTS at DBS Group Research are of the view that the "buyer is the bigger beneficiary" in Oxley Holdings' deal to sell Chevron House for some S$1.025 billion, although Oxley and some industry sources disagree.

The sale comes just 16 months after the debt-laden property developer acquired the prime office building in Raffles Place for S$660 million in December 2017. Oxley has agreed to sell the 32-storey office tower to Golden Compass, which is wholly owned by US-based real estate fund AEW.

"Based on the available information and our ballpark estimates, we believe the buyer is the bigger beneficiary of this transaction by acquiring the office component of Chevron House at below 4 per cent cap rates, with reversionary potential close to 5 per cent cap rates.

"This has yet to factor in any potential plot ratio upside from the government schemes to incentivise the redevelopment of the central business district," DBS analysts Rachel Tan and Derek Tan highlighted in a research note on Thursday morning.

The cap rate is the rate of return on an investment property based on the income that it is expected to generate.

In response to the analysts' comments, an external spokesman for Oxley said it would not be fair to compare this sale to that of a completed building, seeing as Chevron House still has ongoing alterations, additions and asset enhancement works.

"Also, the building was sold with no tenancy agreements, so it will be up to the buyer to source for tenants," the spokesman told The Business Times (BT) on Thursday evening.

"Many developers in the market are saying that Oxley got a great deal by selling a building just based on drawings," he added.

Under the sale-and-purchase agreement, after Oxley receives an initial S$210 million, it is to complete the works and also divest the retail and banking units before the buyer will pay the balance of the consideration and discharge the bank loans.

An industry source who declined to be named said: "Oxley managed to sell the building for a handsome profit of more than S$200 million to shareholders in such a short time, despite the incomplete construction and zero tenancy agreement.

"This could potentially go down as the deal of the year."

The DBS analysts said that the initial cash proceeds of S$210 million will facilitate Oxley's repayment of its first tranche of retail bonds of S$300 million expiring on Nov 5, though certain deal terms have not been revealed.

"The devil is in the details, but the terms attached between Oxley and the buyer with regard to the divestment of the retail and banking units, and any other terms and conditions are not made known. If we assume that the first tranche of payment is potentially the maximum gain or cash proceeds to be received by Oxley for the sale, we believe the cash received will alleviate some of Oxley's urgent cash requirements, though not completely," they said.

BT understands that the initial payment of S$210 million will be the maximum cash proceeds that Oxley will receive under this deal.

"There will be further deleveraging when the buyer assumes Chevron House's bank loans upon completion of the transaction when conditions are met," the analysts added.

BT reported on May 1 that the buyer will take over the S$450 million in borrowings which Oxley had taken out to finance its 2017 acquisition of Chevron House. The sale will thus reduce Oxley's debt by that amount.

Oxley has two tranches of retail bonds maturing soon: S$300 million due on Nov 5, 2019, and S$150 million due on May 18, 2020.

It also has S$238 million of corporate borrowings expiring in fiscal 2020/2021, and S$631 million of euro medium-term notes expiring in fiscal 2021/2022.

Oxley shares closed at S$0.32 on Thursday, down 1.5 per cent or 0.5 Singapore cent. The company has a market cap of about S$1.34 billion as at May 2.