SGD New Issue Review : PT CIPUTRA PROPERTY 3Y

PT CIPUTRA PROPERTY SGD 3Y

– New PT Ciputra Property SGD 3Y announced
– Strong IOI received post roadshow and deal is anchored
– Initial Price Guidance: 6% area
– PB selling commission: 50cents
– Timing: This week’s business, as early as today

Comps:
Lippo Mall 4.48 2017 – 100.25, 4.38%
Guocoland 3.6 2017 – 100.50, 3.39%
Centurion 5.25 2016 – 102.90, 3.44%

Credit Highlights:
– PT Ciputra Property Tbk (Ciputra) is 58% owned by  PT Ciputra Development and there is a COC put at 101%.
– Founder, Dr. (HC) Ir. Ciputra, is a pioneer in the Indonesian property market with the Ciputra name being a well-known brand name in the Indonesian market.
– Ciputra is listed on Indonesian Stock Exchange and has a market Capitalisation of Rp 4,350.9 billion as of 30 September 2014.
– Recurring income accounted for 46% of Ciputra’s revenue in 9M2014 and 37% in FY2013.
– Almost all of the group’s landbank is located in the high-value prime locations in Jakarta and Bali. Key projects include Ciputra World 1,2, 3 Jakarta and Ciputra Hotel and Mall Jakarta.
– Ciputra has established business relationships and long term contracts with strong tenants such as DBS, Lotte and L’Oréal
– Ciputra has strong partnerships with leading operators, property managers and contractors in the international property market, including The Ascott Limited, Frasers Hospitality, FRHI Hotels and Resorts, Intercontinental Hotels Group, Jones Lang LaSalle, the Lotte Group, Ritz Carlton Reserve, the Starwood Hotels and Resorts, and Swiss-Belhotel International.
Not an expert of Indonesian tycoons but this one is the 21st on the 2014 Forbes list of Indonesia’s richest. http://www.forbes.com/profile/ciputra/

Real estate is the way to go in India and Indonesia just like how Singapore became wealthy when Raffles Place started going at 2k psf.

Less leveraged than Guoco, I would say this is not a bad deal especially when the recent Guoco 3.6% 08/2017 is going at 100.50/100.75 (3.39/3.28%) today.

3 year interest rate is at 1.295% today which gives a comfortable premium of 4.7%.

Still this is in the high yield category if we have to be stern about it and a potential comparable would be the USD Modernland  Overseas (B2/B) 11% 10/2016 which is going at about 100.875/101.875 (10.41/9.76%).

But Lippo Karawaci (Ba3/BB-) is perhaps a better candidate, the USD 6.125% 11/2020 (callable in 11/2018) is going at 5.43%.

I am not sure why Centurion was picked as a comparable because that is worker dorms in Singapore compared to office buildings and malls in posh districts of Jakarta.

Because I am lazy, I managed to get a good concluding write up by a friend who will, hopefully, be writing for us soon.

Here goes……

There are no good Indonesian real estate SGD comparables.

I have looked at Lippo Karawaci, Pakuwon Jati and Alam Sutera as the closest comps in the USD space.

Taking a cursory look at Ciputra’s financials, it has been profitable over the past few years, and leverage ratios look decent (Debt/EBITDA:1.59, EBITDA/Interest Expense:14.6).

Leaving out Alam which is a much smaller company, Lippo, Pakuwon and Ciputra are all roughly the same size in terms of market cap.  Hence, I think applying a z-spread of 500 to Ciputra would be reasonable given it is a 3-year compared to 4.5 years for the other 2 issuers.

With current 3yr SGD Swap rate of 1.27%, I arrive at 6.27% on new Ciputra 3 year.  Given that SGD bonds tend to trade tighter (in spread terms) than the USD issues of the same issuer, I have tightened in the fair value by another 50bps (CENCHI 17 (SGD) is tighter than CENCHI 18(USD) by 95bps).

That gives a FV of about 5.75% on new Ciputra.