Singapore - DBS Bank has successfully sold $200 million of five-year bonds securitised on a condominium project and based on progress payments, a first since 2008.
Private investors were the buyers of the fixed rate notes due March 2018 issued by Orchis Capital Pte Ltd, a special purpose company, the bank said.
The notes will be secured by Orchis's rights over Skies Miltonia Property, a property development in Yishun comprising 420 residential condominium units and two commercial units.
The developer of Skies Miltonia is TG Master Pte Ltd. In November 2011, TG Development and Master Contract Services offered a top bid of $138.9 million or about $364 per square foot per plot ratio for the 99-year leasehold Yishun site.
When launched in October 2012, Skies Miltonia was one of the top-selling property projects, with a $1,034 psf median price.
Peeyush Pallav, of DBS Bank's structured debt solution, treasury and markets unit, said he expects more such transactions as they help developers diversify their sources of funding while investors like the cash flow from buyers' progress payments.
The receivables due from buyers of off-plan properties in Singapore, are linked to the construction progress, and paid over time.
The amounts are deposited in project accounts, which are governed by rules which permit usage of funds only for limited end-use.
"The developers of residential projects in Singapore therefore need to wait for on average 3-5 years before they can realise the profits of the developments," said Mr Pallav. "Previous transactions were done in 2001 to 2008 when the deferred payments system existed," he said. Some of them also had portions of progress payment streams in the cashflows, in addition to the deferred payment ones.
"However, this is the first transaction, after the financial crisis, in the world to be structured, rated and sold to investors, and completely based on progress payments," he said.
Skies Miltonia is more than 93 per cent sold and scheduled for completion by Dec 31, 2016. For the investors, they are comforted by the fact that the project is 93 per cent sold, he said.
To be able to raise funds from other sources will help developers, as banks tighten up on bank loans. Being able to tap other investors for funding would also raise a developer's profile, noted Mr Pallav.
TG Development is related to the Tong Garden Group which is involved in the nuts business. In a 2004 interview, Ong Boon Chuan, son of Tong Garden Food Products founder Ong Tong Guan, said that TG stands for his late father's initials.
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