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Moody's reviews Frasers Centrepoint Trust's rating for downgrade

MOODY'S Investors Service has placed Frasers Centrepoint Trust (FCT)'s 'Baa1' issuer rating under review for downgrade.

This comes after FCT announced that it had entered into 12 conditional sale-and-purchase agreements to acquire a 17.13 per cent stake in PGIM Real Estate AsiaRetail Fund for S$342.5 million. PGIM Fund owns and manages six retail malls in Singapore, one office property in Singapore and four retail malls in Malaysia.

Saranga Ranasinghe, Moody's assistant vice-president and analyst, said: "The rating action reflects the potential weakening of FCT's credit metrics, if the proposed transaction is funded substantially with debt."

Assuming the acquisition is 60 per cent funded by debt, it will increase FCT's total borrowings by around S$205.5 million and weaken FCT's leverage to around 7.2x from 6.4x as at December 2018, eroding headroom under the downgrade trigger level of 7.5x, Moody's said in a release.

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"A meaningful equity issuance would be credit positive as it will help to partially correct leverage," Moody's added.

The aggregate consideration for the proposed transaction is expected to be initially funded through a bridging loan. The bridging loan will be repaid by either a term loan or through a combination of a term loan and equity. 

The transaction, expected to close in April, is subject to approval from the Bermuda Monetary Authority, PGIM Fund's board of directors and the non-take up of the shares on offer by other existing shareholders, given their right of first refusal. 

Ms Ranasinghe added: "The proposed transaction will improve FCT's portfolio diversification given that the fund's investments include suburban retail malls in Singapore and Malaysia. FCT will, however, have lesser control over the fund's strategy as compared to its previous acquisitions which involved full ownership of operating assets."

FCT's rating could be downgraded if FCT "fails to employ a prudent funding mix that ensures headroom within its 'Baa1' rating", Moody's highlighted.