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Rating adds to appeal for Cambridge Industrial Trust
May 15, 2015 / 8:03 AM / 2 years ago

Rating adds to appeal for Cambridge Industrial Trust

SINGAPORE, May 15 (IFR) - Cambridge Industrial Trust on Thursday became the first among its REIT peers to sell a rated Singapore dollar bond, showing that ratings are becoming increasingly important in broadening appeal to investors and driving down pricing.

The industrial REIT priced a S$130m (US$98m) five-year bond issue at a yield of 3.95%, in slightly from guidance in the 4% area.

The bond will be issued off CIT's S$500m multicurrency MTN programme, which is rated BBB- (S&P), the same as the issuer. Its peers in the same sector, such as Sabana Shariah Compliant Industrial REIT, AIMS AMP Capital Industrial REIT and Soilbuild Business Space REIT, all share its BBB- rating at the corporate family level. However, those REITs have not sought ratings on their bonds. Several of those issuers have pledged assets as security for other borrowings, meaning that the rating on an unsecured bond would probably be a notch lower, at BB+.

CIT has a S$218m secured club loan due 2016, but it will refinance this with a mix of bonds and an unsecured loan. This move will free up around S$600m of assets, bringing the total unencumbered properties to around S$1bn, from S$408.8m beforehand, and earning it a Triple B rating.

"The investment-grade rating on the bond was an important factor which bond investors look at when considering pricing and whether to participate in a bond issuance," said David Mason, chief operating officer and CFO of Cambridge Industrial Trust Management. "It has certainly generated more interest from institutional investors and private banking customers. This has manifested itself when our book was more than two times subscribed."

The rating looked to have cut CIT's funding cost, too. The yield of 3.95% equated to 187bp over SOR, better than the low 200s it had paid before. In November, it sold a four-year bond at 214bp over SOR and later tapped it in January at 208bp. That meant CIT saved more than 20bp in spread terms, even before adjusting for the longer tenor of the new bonds, which could be worth 10bp-15bp.

Few investors in Singapore require bonds to be rated under their mandates, but in Malaysia, only rated bonds may be traded. That may have contributed to strong demand from Malaysia for the CIT deal. Most Sing dollar bond deals are sold almost entirely to Singapore investors, but Malaysian accounts bought 47.7% of the new issue, following a roadshow there.

The Monetary Authority of Singapore has hinted in the past it may make ratings mandatory, but Bank Negara Malaysia is planning to liberalise its rules and allow market participants to trade unrated bonds from 2017.

However, some investors claimed that company-level ratings were good enough for their needs.

"Unlike the Hong Kong side where they need explicit issue ratings, most Singapore issues don't need ratings," said one Singapore bond investor. "As long as an issuer has a rating, we can port that over to the bonds."

CIMB was sole bookrunner for the deal, which attracted S$275m of orders from more than 25 accounts. Fund managers bought 90.6% and private banks and others the remainder.

Cambridge-MTN Pte Ltd is the issuer, and RBC Investor Services Trust Singapore, the trustee of the REIT, will guarantee the notes. (Reporting by Daniel Stanton, editing by Dharsan Singh and Steve Garton)

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