Debt Reprieve For Allco Reit - But At A Much Higher Cost

Source : The Business Times, March 27, 2008

Market cheers news the firm has secured extension of loans.

Allco Commercial Real Estate Investment Trust (Allco Reit) earned a reprieve in its debt repayment obligations last week - but at a much higher cost.

Allco (Singapore) Limited, the manager of Allco Reit, had announced last Thursday that the trust had received in-principle approval to extend the due date of S$550 million in debt from July 31, 2008 to Dec 31, 2009. It had not detailed the terms and conditions of the extension, saying only that it was currently reviewing them.

When asked by BT yesterday about the terms of the refinancing, Nicholas McGrath - CEO and managing director of Allco (Singapore) Limited - did reveal that, while the terms were largely the same, the refinancing was ‘a lot more expensive’.

He declined to state the exact quantum of the increase in the cost of refinancing, that is the change in interest rate charged by creditors for the extension of the loan - explaining that such matters are confidential.

Refinancing of loans is typically a pricier matter for most debtors, with creditors choosing to charge more for the extension or relief in debt obligations.

Mr McGrath could, however, reveal to BT the blended margins for Allco Reit’s total debt obligations. The trust currently has S$620 million in Sing-dollar debt and another S$260 million in debt denominated in Japanese yen. The blended interest rate for its total is 3.8 per cent for 2008 and 3.95 per cent for 2009 - with the interest rate being higher for the Sing-dollar debt than the Japanese-yen portion.

‘But the margins are still lower than what our properties are yielding,’ Mr McGrath explained.

Allco Reit’s key properties include China Square Central and 55 Market Street in Singapore, and Central Park in Perth, Australia.

S$70 million of its Sing-dollar debt will mature in November 2008, which Allco Reit will repay in full with the proceeds from the sale of the assets of Allco Wholesale Property Fund. The rest of its debt obligations are long-term ones.

Mr McGrath also told BT that the trust intends to decrease its leverage over the next 12 months - from 43 per cent currently, to about 30 per cent in a year’s time.

Allco Reit’s debt repayment concerns had been the subject of a fierce legal tussle last week. The trust had sought a court injunction to head off a credit ratings downgrade by Moody’s Investors Service, concerned that the downgrade would hurt its attempts to refinance its debt. But Moody’s had battled the injunction, saying it should not be stopped from going ahead with its independent credit reviews.

The injunction was set aside by the High Court last week, and Moody’s had gone ahead with the ratings downgrade - lowering the trust’s corporate family rating to ‘Ba2′ from ‘Ba1′ and retaining the ratings on review for further possible downgrade.

Despite the downgrade, Allco Reit still succeeded in refinancing its debt - announcing a day after Moody’s ratings revision that it had managed to secure an extension of its loan obligations.

And the market has reacted favourably to Allco Reit’s announcement, with its share price having climbed steadily since. Allco Reit shares closed at 80.5 cents yesterday - up 11 per cent from its close of 72.5 cent last Thursday, after the ratings downgrade.