INVESTOR demand for $350 million of bonds that can later be converted into shares from South-east Asia’s largest property developer CapitaLand has been overwhelming.
So strong, in fact, that CapitaLand was able to offer investors a comparatively low annual rate of payment, known as the coupon rate, of 2.1 per cent a year over the 10-year maturity.
Investors did not baulk either at one of the highest conversion premiums - 42.8 per cent - seen for a bond issue here. This is the figure used to calculate the conversion of bonds into CapitaLand shares.
Investors were mainly investment funds from Asia but it is understood that there were also funds from Europe. Details of the bond issue were announced yesterday.
The reason for the high level of demand is the intense interest in the property sector, and CapitaLand’s strong share price performance - up 53 per cent this year.
By snapping up the bonds, investors seem confident that over the 10 years of the bonds’ life, CapitaLand’s share price will rise more than 42.8 per cent - handing them a profit.
This means the share price will have to hit at least $7.31 - a rise which analysts say is feasible, given this year’s meteoric rise.
On Thursday, the shares closed 15 cents higher at $5.25, an all-time record high. However, yesterday, they slipped back down to $5.10.
Bankers said that investors are keen to buy into CapitaLand’s growth story, with its ambitious expansion plans in Russia and India and the chance that it can land the Sentosa integrated resort project.
Investors are also taking into account the upturn in the property sector here.
With the relatively low interest rate, investors are likely eyeing the shares for potential capital gains rather than the annual payout.
The bond issue has made some market observers sit up due to the long maturity period - 10 years - the longest for any convertible bond issue in Asia. Convertible bonds are usually about five years in duration.
As well, the hefty conversion premium comes in as one of the highest among property companies in Asia.
For CapitaLand, the convertible bond issue is a savvy financing move, coming at a time when its share price is flying high. It is borrowing at about 2.1 per cent a year and gets 10 years to repay it. Depending on the conversion by bondholders, CapitaLand could likely shell out even less.
JP Morgan Chase handled the deal. Its head of investment banking for South-east Asia, Mr Philip Lee, said: ‘The bank is very proud to be associated with this. The success is attributed to investors’ confidence in the company and management team.’
Source : Straits Times - 7 Oct 2006
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