Treasury Today Country Profiles in association with Citi

Soilbuild Business Space REIT

SB REIT Management Pte Ltd, Highly Commended, Best Funding Solution

Photo of Lim Hui Hua, SB REIT Management Pte Ltd.

This funding solution relates to a Singapore real estate investment trust or REIT and an amendment to the Code of Collective Investment Schemes for REITs. Soilbuild REIT’s Manager had been contemplating the withdrawal of both its corporate credit rating and the rating on its S$100m Series 002 Notes, due 2021. By obtaining an unsecured bank facility from its bank for the notes’ redemption, the Manager was able to achieve its objectives with minimal cost.

Photo of Lim Hui Hua, SB REIT Management Pte Ltd.

Lim Hui Hua

Chief Financial Officer

Soilbuild Business Space REIT is a Singapore real estate investment trust (REIT) established with the principal strategy of investing on a long-term basis, directly or indirectly, in a portfolio of income-producing real estate. This portfolio is used primarily for business purposes in Singapore, as well as for real estate-related assets.

Retaining investor trust with low-cost funding solution

The challenge

In mid-2017, Soilbuild REIT’s sponsor, Lim Chap Huat, who had a 25.8% interest, considered transferring part of his interest to his sons – Lim Han Feng, Lim Han Qin and Lim Han Ren for estate planning purposes.

Due to a ‘change of control’ condition in all Soilbuild REIT’s financing documents, this could potentially jeopardise the Trust’s credit facilities, which had been provided by a mix of local and foreign banks as well as issued notes amounting to S$200m.

Following the amendment to Appendix 6 of the Code of Collective Investment Schemes for REITs to adopt a single-tier leverage limit of 45% without the requirement for a credit rating, Soilbuild REIT’s Manager had been contemplating the withdrawal of both its corporate credit rating and the rating on its S$100m Series 002 Notes, due 2021.

Had Soilbuild REIT sought noteholders’ consent for the amendment of the change of control clause, it would have incurred substantial noteholders’ consent fees and bank solicitation fees. Even then it would still not be able to voluntarily withdraw its credit rating without affecting certain noteholders.

Whilst the withdrawal of the credit rating would reduce Soilbuild REIT’s expenses, the Manager was mindful that certain noteholders may have to divest its notes due to their internal investment mandate, should Soilbuild REIT’s credit ratings be withdrawn.

The solution

In order to achieve its goals, it was necessary to obtain a waiver of the change of control clause from the banks. This could be done through an amendment letter from the existing banks and by obtaining a facility to cover the possibility of redemption on the notes.

By obtaining an unsecured bank facility from HSBC for the notes’ redemption, the Manager was able to achieve its objectives with minimal cost. As it was not possible to ascertain the full amount of redemption, the bank provided the Manager with a S$200m loan facility. The exercise has allowed Soilbuild REIT to simultaneously provide an exit platform for noteholders who prefer to hold rated-notes, and resolve the change of control issue.

Best practice and innovation

Soilbuild REIT made a considered play to the benefit of itself, its investors and its banks, incurring no cost for the amendment of its bank facility agreements by using amendment letters to achieve its goals.

Lim Hui Hua, Chief Financial Officer, explains: “The Manager believes that the solution has enabled the retention of investors’ trust in Soilbuild REIT by giving them favourable exit options. The Manager is fully cognisant of the fact that, notwithstanding attractive pricing offered by the banks, it may want to diversify its funding sources, possibly through tapping the bond market, and has endeavoured to uphold its reputation in the capital market.”

“The Manager implemented a win-win solution for all its capital providers including noteholders and unitholders,” concludes Lim.

Key benefit

This exercise has delivered significant cost savings in terms of consent, solicitation and professional fees. It has also provided noteholders, particularly those who had bought investment grade rated notes, an option for redemption at par value when the credit rating was voluntarily withdrawn.