Sabana Reit prices S$100 million in sustainability-linked bonds due 2029 at 4.15%
The trust’s decision to issue the notes has drawn flak from activist investor Quarz Capital
SABANA Real Estate Investment Trust (Sabana Reit) has priced S$100 million of sustainability-linked bonds due 2029, said the manager in a bourse filing late on Tuesday (Jun 18).
The bonds will be issued in the denomination of S$250,000 and will bear a coupon rate of 4.15 per cent per annum. If the Reit fails to meet its sustainability performance target, there will be a coupon step-up for the bonds.
The manager plans to reduce by 30 per cent its indirect emissions related to the purchase of electricity, steam, heat or cooling by 2028. To achieve this, the Reit has partnered Keppel Infrastructure’s wholly owned subsidiary, Keppel Energy-as-a-Service, to implement and execute decarbonisation solutions. This includes installing solar panels across nine portfolio properties.
The trust’s decision to issue the notes has drawn flak from activist investor Quarz Capital who, in a letter dated Jun 14, called the bond issuance “highly abnormal and extraordinary” since the trust currently has “zero refinancing needs”. Quarz also believes the issuance could impede the Reit’s internalisation, as the bond terms contain clauses related to change of control of the manager, which could entrench the current Reit manager and sponsor from being removed.
Defending the bond issuance in a statement on Tuesday, the Reit manager said that it has been working on the bond issuance since June 2022, before Quarz requested to convene an extraordinary general meeting to discuss its internalisation.
Separately, the trustee said that the terms of the bond issuance do not place more restrictions on the internalisation than already existing under the terms of the Reit’s current financing agreement. “It is unclear how Quarz has arrived at its conclusion, taking into account the reasons set out in the manager’s Jun 17 announcement and the matters stated above,” the trustee said.
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The net proceeds from the bonds issue will be used for capital expenditures, such as acquiring new properties and asset enhancement initiatives, as well as refinancing existing term loans, including loans made by the joint lead managers.
HSBC’s Singapore branch and CIMB Bank Berhad’s Singapore branch have been appointed joint lead managers, joint bookrunners and joint sustainability-linked framework structuring advisers for the issue of the bonds.
The payment obligations of the issue will be unconditionally and irrevocably guaranteed by the Credit Guarantee and Investment Facility (CGIF), a trust fund of the Asian Development Bank. The manager expects the bonds to be rated “AA” by S&P. The trustee will also enter into a standby letter of credit (SLBC) facility agreement with HSBC bank and CIMB bank.
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Quarz had also highlighted an “event of default” clause under the SBLC facility agreement and a reimbursement and indemnity agreement (RIA), which was entered into bilaterally between the trustee and the CGIF.
In response, the trustee said the RIA is separate to the terms and conditions of the bonds. It also highlighted that the agreement requires the issuer and the CGIF to enter into discussions in the event of a change of control.
But it noted that such additional provisions have no bearing on the scheduled maturity of the bonds, with the CGIF guarantee for the benefit of the bond investors remaining intact.
Under the SBLC facility agreement, a change of control would result in the total commitment becoming due and payable within seven days, which Quarz claimed could result in the Reit facing financial difficulties as it would have to source for funding or provide collateral and guarantee. An SBLC which is issued by a bank on behalf of its client, guarantees the bank’s commitment to pay a seller should its client default on the agreement.
Sabana Reit’s SLBC amounts to S$10 million in favour of the trustee as the bond issuer. “It bears noting at the outset that this amount is not material as compared to the total existing borrowings (S$333 million as at Mar 31, 2024) of Sabana Reit,” said the trustee. The terms of the SBLC also do not change or add to these considerations as the lenders are already the Reit’s existing lenders.
The trustee also noted that it negotiated and obtained an additional requirement for prior consent in writing to be sought from lenders for any future changes of manager which triggers this review event.
Based on pro forma estimates, the Reit’s weighted average tenor of borrowings will lengthen to 3.5 years compared to 2.7 years as at Mar 31, 2024. The hedge ratio will rise to 80.1 per cent post-bond issuance, compared to the 51.8 per cent as at Mar 31, 2024. There are no refinancing requirements until 2026, the manager added.
It expects the bonds to be issued on Jun 25, 2024.
Units of Sabana Reit were trading up 1.4 per cent or S$0.005 at S$0.35 as at 9.44 am on Wednesday.
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