<Alert!> EC World REIT: Refinanced term loans at the finishing line; M&A in the works
- Relief rally as offshore loans (75% of overall debt) are refinanced till April’23
- Manager in discussions to refinance onshore loans (25% of debt) expiring in July’22 to April’23
- Sponsor to undertake an acquisition of ECW REIT’s assets to repay at least 25% of offshore loans by Dec’22
- M&A back in the works?
What has happened
EC World REIT (“ECREIT”) announced that the REIT manager has entered into an agreement with its offshore lenders to extend its maturity of its Offshore facilities to (i) maturity date of its Onshore facilities, (ii) 30th April 2023.
The onshore facilities (totalling RMB 906.5m) are due in July 2022 (expect for a RMB63m expiring in July 2029) and the managers are in current discussions with the onshore lenders for the extend of the maturity to April 2023.
The REIT manager also announced that Forchn Holdings Group Co (“Forchn”), the sponsor of EC World REIT will procure that the refinancing of the Offshore Facility are commenced immediately and ensure that 25% of the aggregate Offshore facility are repaid by Dec’22 through asset acquisitions of asset(s) of EC World REIT and/or its subsidiaries.
What we think
A near term relief but not totally out of the words.
Worries of EC World REIT’s refinancing “issues” have proven to be unfounded, in our view. That said, the tenure of the refinancing of the offshore facilities (c.75% of its total loans of S$706m) appear to be a short term extension with another refinancing discussion to happen with the lenders again in one year’s time. That said, we notice a provision this time round that the offshore lenders have required to downsize the outstanding loan quantum by 25% through asset sales by Dec’22.
Watching the onshore facility discussions which will expire in July’22.
The manager is currently in discussion with onshore lenders for the refinancing of its onshore loans which account for c.25% of its overall loan outstanding. We understand that the manager is looking to extend these loan facilities till April 2023, similar as the offshore loan.
Could M&A discussions restart?
We noted that an undertaking that the Sponsor to acquire assets of EC World REIT, proceeds which will be utilised to repay at least 25% of its offshore loans by Dec’22 which we estimate to be close to S$132m. This new development could potentially mean a revisit of a possible M&A of part of all of EC World REIT’s assets, which the manager highlighted back in May’21 where the Manager was in discussion with a possible transaction involving all of EC World REIT’s properties.
What should investor do.
While the refinancing is not totally out of the woods for now, we the prospects of asset sales (crystallisation of NAV) coupled with a relief of near term refinancing pressures to lift the overhang on the stock since the announcement of its possible refinancing issues that was highlighted back in April’22. We see near term relief rally for ECW REIT towards 0.5 standard deviation P/NAV level of 0.75x, implying share price should revisit S$0.70/unit.