SGD New Issue Review : Lend Lease 7Y (Secured on JEM)

**LEND LEASE RETAIL INVESTMENTS 3 PTE. LTD. SGD 7Y SNR SECURED-IPG**

ISSUER: Lend Lease Retail Investments 3 Pte. Ltd.
GUARANTOR: Lend Lease Commercial Investments Pte. Ltd.
STATUS: Direct, unconditional, unsubordinated and secured Notes
ISSUE SIZE:  TBD
FORMAT/DOCS:  Reg S, Sections 274 and/or 275 of the SFA,  issuance off SGD 500 million Secured Multicurrency  Medium Term Note Programme
RATING:  Not Rated
INITIAL PRICE GUIDANCE:   3.40% area
TENOR:  7-Year
INTEREST PAYMENT:   Semi-annual, actual/365 (fixed)
THE PROPERTY:  An integrated office and retail development located at 50 Jurong Gateway Road, Singapore 608539 in western Singapore known as Jem
USE OF PROCEEDS:   To refinance existing secured bank borrowings
SECURITY VALUE: In accordance with the Programme – the Ratio of   Total Secured Debt to Total Security Value will not at any time exceed 0.70 to 1
MANDATORY REDEMPTION ON SALE:
In accordance with the Programme
MANDATORY REDEMPTION FROM INSURANCE PROCEEDS:
In accordance with the Programme
REDEMPTION ON A BREACH OF  SECURITY CONVENANT EVENT:
In accordance with the Programme
REDEMPTION AT THE OPTION OF  NOTEHOLDERS UPON CHANGE OF
SHAREHOLDING EVENT:
In accordance with the Programme
DENOMINATION: SGD250K
GOVERNING LAW: Singapore Law
LISTING:   SGX-ST
CLEARING:  CDP
SELLING RESTRICTIONS:        Reg S, Sections 274 and/or 275 of the Singapore SFA

Feeling like a super sleuth on this one.

“There could be concern as to whether the bond investors actually do their homework in some of these new issuances, especially the new ones in the midcap”: Liew” (Source : Bloomberg article)

Yes. Because is it true. Bond investors have a window period of a few hours and SGX does not have the bond Information Memorandum on their website.

Thus I concluded that this bond is not for the retail person which is a fair assumption at 3.4% for 7 years issued by a company that bears the Lend Lease name (rated Baa3/BBB-) but is only just about 1/3 directly owned by the mothership, Lend Lease Group, the largest property developer in Australia !

lend lease jem ownershiptaken from page 53 of Lend Lease 2013 Annual Reprot

Lend Lease Group directly owns 10.1% of Lend Lease Asian Retail Investment Fund 3 which owns 75% of JEM and the other 25% is owned by Lend Lease Jem Partners Fund. (sorry for this but I like to get the ownership structure straight and please correct me if I am wrong )

JEM OWNERSHIP STRUCTURE* chart taken from page 76 of the Info Memo.

I confess I tried to go to JEM about 2 months back while my son and I were feeling adventurous and decided to do a mini excursion. I had no idea of the massive development in that part of Singapore and getting to JEM by line of vision and sight was a bad, bad idea.

Ok. We thought we nailed it but we ended up at Westgate mall and its was nice and fancy that I should imagine JEMS to be the same.

The interesting part of this deal is its cross guarantee structure – the commerical and retail components cross guaranteed themselves in this case, doubling up the single asset risk.

Also interesting is a recent $905 mio loan facility agreement signed on 27 June 2014 to extend their 5 year term loan signed in 2010 (maturing 2015) at a credit spread of SOR + 2.375%. Their unsecured loan from their parent was dealt at SOR + 5% (matures in 2019). I am unable to get the new loan details.

At 3.4% for 7 years, we have a premium of 1.32% over 7 year interest rates which is at 2.08% at the moment.

The latest valuation of the property is at $1.864 bio and the Lend Lease 2013 Annual Report had it at $1.785 bio at end Jun 2013.

905 mio +500 mio = 1.405 bio > 70% of $1.864 bio so let’s hope they don’t max out.

Other Lend Lease managed assets in Singapore and Malaysia – Parkway Parade, 313@Somerset and Setia City Mall in Malaysia.

I daresay their track record speaks for itself.

After our latest National Day Rally speech hard selling Jurong, JEM mall looks well poised to capitalise on the developments in the area which is a good reason not to REIT the place.  Because they can probably sell it off (to a REIT) at a higher profit sometime in the future, in which case, the bonds would be redeemed at the issuer’s option.

The price is a little expensive at 3.4% as an absolute yield for an unrated but secured paper which also carries the single asset risk along with it. Not when Capitaland 10Y is going at 3.8%.