It had an injunction to stop Moody’s revision, but this was lifted yesterday.
IN AN unprecedented move, a Singapore-listed property trust has taken legal steps to avoid being downgraded by a credit rating agency for the second time in two months.
Allco Commercial Real Estate Investment Trust (Reit), which owns buildings such as China Square Central and Keypoint in Singapore, last week obtained a High Court injunction to prevent Moody’s Investors Service from revising its rating, sources said. The injunction was lifted yesterday. This prompted Moody’s to send an e-mail to subscribers saying it would drop Allco’s rating by one notch, from Ba1 to Ba2, with more downgrades possible.
This comes less than two months after Moody’s downgraded Allco one notch from Baa3 to Ba1 on Jan 31.
These ratings gauge a company’s ability to repay its debt. A Ba-rated company is judged to have speculative elements and a future that is not well-assured, according to definitions from Moody’s.
But the drama did not stop there. Allco then filed a last-ditch appeal yesterday against the removal of the injunction - only to withdraw it hours later, according to sources.
Allco Singapore, which manages Allco Reit, declined to comment but issued a statement last night confirming the lower rating.
The company’s huge effort to avoid being downgraded comes amid a worsening global credit crunch that has made it difficult for firms to secure funding.
Stock markets are in turmoil and banks, many of which are in trouble themselves, are holding back on lending money.
Allco’s ultimate holding company, Australian asset manager Allco Finance Group, is struggling with its own problems in repaying debt. Two weeks ago, bankers seized 14 per cent of its outstanding shares as collateral for unpaid loans, according to news agency Bloomberg.
Moody’s lowered rating for Allco Reit could complicate any effort by the firm to raise funds, even as its debt nears maturity.
The trust had intended to raise up to $150 million last year by issuing new units to unitholders, but cancelled the plan in November, citing market conditions.
In its e-mail yesterday, Moody’s said its new Allco rating ‘remains on review for further possible downgrade’.
Among other things, the review will focus on Allco’s announcements earlier this month, which revealed its parent company’s unpaid debts. Allco Reit itself will write off A$1.6 million (S$2.1 million) that its parent company owes it.
The Reit, which also owns properties in Japan and Australia, said it may sell its Australian assets. It has stakes in two office towers in Perth and Canberra, and an interest in a fund that invests in Sydney properties .
Moody’s review will also consider Allco’s debt that is due for refinancing in the coming months.
Its downgrade of the Reit in January was partly due to the trust having $550 million of debt due to be refinanced on July 31.
The agency also said Allco had a weakened credit profile and an ‘aggressive’ financial strategy.
Other Singapore Reits downgraded or placed on review for downgrade this year include Mapletree Logistics Trust and Suntec Reit, according to a Reuters report earlier this month.
By comparison, the CapitaMall Trust Reit was given a A2 rating by Moody’s. This rating, Moody’s sixth-highest, is considered to be upper-medium grade with low credit risk.
What ratings mean
RATINGS gauge a company’s ability to repay its debt. For example, Moody’s defines a Ba-rated company as one that has speculative elements and a future that is not well-assured.
Implications for Allco
MOODY’S had already downgraded Allco one notch from Baa3 to Ba1 on Jan 31, partly because the trust had $550 million of debt due to be refinanced on July 31.
Being dropped a notch further to Ba2 could complicate any efforts by Allco to raise funds, even as its debt nears maturity.
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