Sponsor pulls the plug on Dynasty Reit listing

SINGAPORE - What was tipped to be Singapore's largest initial public offering (IPO) of the year, and the first renminbi-denominated listing on the Singapore Exchange (SGX), has fallen on its face.

Dynasty Reit's flotation, which was expected to raise up to 5.4 billion yuan (S$1 billion), has been suspended until further notice, its sponsor, ARA Asset Management (ARA) said yesterday.

"I think this is one of the toughest decisions I've had to make in the last 10 years when I've been managing ARA," group CEO John Lim said in a conference call after markets closed.

Despite winning "substantial support" from institutional and retail investors, ARA said that there was a "marked change in market sentiment" in the past week.

It listed two factors for this change: the poor recent performances of several IPOs and a gradual worsening of overall market conditions.

Ho Cheun Hon, managing director, head of equity capital markets in Southeast Asia at Macquarie Capital Securities, said: "We looked at the book at the end of the day, the demand was there, but in our opinion, the demand was not such that we could allocate a transaction that we are comfortable to say would trade strongly in the aftermarket."

Macquarie is one of the IPO managers for the Reit, along with Standard Chartered Securities and DBS Bank.

On the matter of worsening market sentiment, Roger Tan, chief executive at SIAS Research, acknowledges a growing caution among investors but believes that Dynasty Reit's suspension could be an outlier.

"Getting funds from the market has been challenging but there had been much demand for S-Reits in 2012 so far," he said.

Three business trusts and Reits have been listed on the SGX this year.

"I think it's more the attractiveness of this IPO rather than the market itself," he said, adding that Dynasty Reit had an enticing yield.

The Reit had projected the range to be between 6.8 and 7.1 per cent this year for the period from August to December. For next year, it had expected a yield of 7-7.3 per cent.

"But I think investors are not sure of the quality of the assets and if there is a possibility that the Reit may call for more funds in the near future to increase the asset base given that there are only three assets in the Reit," Mr Tan said.

Dynasty Reit had listed three properties in its portfolio, all based in China: Nanjing International Finance Center, Dalian Tianxing Roosevelt Center and Shanghai International Capital Plaza.

It had even put in place a "distribution per unit (DPU) support" in order to hold up the yield.

This would have been achieved by the Reit using around 491 million yuan of the IPO proceeds to support the DPU, it had said in its prospectus filed with the Monetary Authority of Singapore.

Furthermore, as the sponsor, ARA had also planned to waive its entitlement to distributions on the sponsor units until the financial year ending Dec 31, 2017.

The projected yields would fall to 3.2 per cent for this year, and between 4.1 and 4.2 per cent next year, without such support.

Results have been mixed so far for the companies that were listed in October.

Fortis-backed Religare Healthcare Trust (RHT) and electronics retailer Courts Asia are having a bad run. Both are trading below their IPO prices.

RHT finished at 80 cents yesterday, compared with an initial offer price of 90 cents. Courts closed at 72 cents, versus an initial offer price of 77 cents.

But mining group Geo Energy has sustained its strong start. Its shares closed at 42 cents yesterday, compared with its IPO price of 32.5 cents.

Online game hosting services provider DeClout made a solid debut on Catalist yesterday as its shares surged 12 per cent to 28 cents, from an initial price of 25 cents.

Next in the pipeline of IPOs for this month is rigging and heavy lifting firm Gaylin, which starts trading today.

"In October alone, we successfully supported five issuers in raising $760 million," an SGX spokesman said after ARA announced that it was suspending the Reit. "We remain committed in meeting the capital raising needs of Singapore and international companies as their preferred listing platform."

Analysts BT spoke to in an earlier report expect even more IPOs in the last quarter of the year.

Given the current circumstances, ARA's Mr Lim believes that the call to pull the flotation was the right one. "Being responsible managers, and having listed six Reits across Asia in the last 10 years, I have to ensure that our investors, especially those who have supported us over the years, will not suffer losses at IPO."

With the decision not to go ahead with the listing, ARA will continue to manage the three properties under its privately managed funds.

It may consider a China-focused Reit at a later date, said Mark Chu, CEO of ARA Trust Management (Dynasty). The SGX spokesman said that the exchange looks forward to ARA doing so.

The suspension in Dynasty Reit's listing should remind investors to always be cautious about flotations, SIAS's Mr Tan said.

"Investors should not enter into IPOs based on rumour of spectacular share price performance. They should always know the real intention of the IPO and the potential value of the investment based on the company's strategy."