EC World Reit proposes asset sale for loan repayment, to make special distribution

EC WORLD Real Estate Investment Trust (EC World Reit) is proposing to divest its indirect interests in Bei Gang Logistics and Chongxian Port Logistics at the agreed property values of 1.2 billion renminbi (S$235.7 million) and 820 million renminbi respectively, each representing a premium of 2.9 per cent to their independent valuations.

Proceeds from the transaction will be mainly used to finance the repayment of existing loans, said the Reit manager in a bourse filing on Monday (Oct 3).

The purchasers – who are wholly owned subsidiaries of the Reit’s sponsor – will fund the purchase of the 2 properties through a consideration of 1.4 billion renminbi, while also repaying no more than 266.4 million renminbi of outstanding onshore borrowings for Hangzhou Bei Gang Logistics, which owns the Bei Gang Stage 1 asset.

Some 450.9 million renminbi of net proceeds will also be paid to unitholders through a special distribution, which is expected to be the Singapore dollar equivalent of a renminbi amount representing the balance of the proceeds from the equity consideration.

For illustration purposes based on the exchange rate of 1 renminbi to S$0.2001, the special distribution is expected to be S$90.2 million, which represents about S$0.1114 per unit.

Overall, the divestment is expected to generate net proceeds of 1.3 billion renminbi. The manager expects to provide sufficient cash proceeds for the Reit to finance its repayment obligations while also returning cash to unitholders through the special distribution.

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Having carried out “extensive engagements” with its lending banks and evaluating the proposed divestment, EC World Reit’s manager said there is a “real risk” that the Reit and its subsidiaries may not be able to meet its repayment obligations if the proposed divestment is not carried out.

Despite a gradual resumption of domestic economic activities, the manager flagged continued pressure on the Chinese economy due to rising inflation and the ongoing war in Ukraine.

EC World Reit intends to seek unitholder approval for its proposed divestment at an upcoming extraordinary general meeting to be convened.

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If approved by unitholders, the divestment will enable EC World Reit pare down at least 25 per cent of the aggregate principal amount of its outstanding onshore and offshore loans due Dec 31, 2022 – thus fulfilling a condition set by existing lenders of the Reit.

Following the announcement, units of EC World Reit closed on Monday up S$0.025, or 5 per cent, at S$0.525.