CapitaLand Will Use Conservative Gearing Strategy

Source : The Business Times, August 1, 2007

This maintains a war chest, positioning it to be aggressive on sizeable deals

CAPITALAND indicated yesterday it will adopt a conservative gearing strategy to maintain a fat war chest to swoop aggressively on sizeable deals.

The group now has financial capacity exceeding $5 billion based on its end-June 2007 equity of $10.74 billion and net debt of $4.56billion.

The net debt-to-equity ratio of 0.43 at June 30 - down from 0.55 a year earlier - is one of the lowest among listed property companies in Singapore, giving the CapitaLand 'enormous capacity to grow', said group president and CEO Liew Mun Leong.

End-June 2007 net debt of $4.6 billion was lower than the $5 billion figure a year earlier. The interest cover ratio - earnings before interest tax depreciation and amortisation divided by net interest expense, excluding revaluation gains - improved to 10.4 times in first-half 2007, from 6.8 times in first-half 2006. CapitaLand CFO Olivier Lim said: 'We will be conservative on DE (debt-equity ratio) but aggressive in business posture. I think one helps the other, as opposed to being aggressive on both ends of the scale. That can get us into trouble.

'Maintaining strong financial capacity gives the group a tremendous competitive advantage as it allows us to act fast and with confidence when profitable and sizeable opportunities arise.'

The cost of business opportunities continues to grow in Asia, as seen in CapitaLand's $1.3 billion winning bid for the Farrer Court collective sale site, Mr Lim said.

'Thus, we should never operate continuously at high gearing as it restricts the ability to seize worthwhile opportunities confidently when they present themselves.

'We remain very confident in this up cycle and will continue to invest. But we will also do everything we can to avoid the 'risk of ruin' from 'unknown unknowns'.

'The best way to protect ourselves from these 'Black Swan' events is to maintain financial flexibility and a good margin of safety in respect of our gearing levels.'