Kepland

The Convertible Bond news has been out for a couple of days; same time as the additional stake in Ocean Properties.

Latest Report from CIMB following the CB issue.

Maintain Outperform. KepLand announced it will be issuing S$500m convertible bonds (CBs) at 1.875%, due 2015. The conversion price has been set at S$6.72, 33% above KepLand’s last reference price of S$5.05. Proceeds will be used to refinance debt and/or for acquisitions and general working capital. We estimate that the price implies above-peak asset values. For prudence, we factor in potential dilution, including dilution from CBs issued in 2006, resulting in a 9% increase in its share base. KepLand has been very active and successful in rendering its excess capital productive in recent months, which we view positively in conjunction with the latest CBs’ below-average cost of debt (2%). No change to our core earnings estimates, but we now peg our target price at parity (10% discount previously) to a lower RNAV estimate of S$5.64 (S$5.70 previously) on dilution effect, offset by accretion from recent acquisitions and higher China ASPs. With an enlarged balance sheet for acquisitions and Grade-A office assets for further monetisation, we believe its valuation discount gap should narrow. KepLand remains our key pick for the sector.

Conversion of the CBs will result in a 5% increase in the share base, diluting our RNAV estimate by 5%. The probability of this is debatable, though. The conversion price of S$6.72 represents KepLand’s highest price in over three years, 33% above its last reference price of S$5.05. We estimate that the price implies an average of 10-15% increase in ASPs (in Singapore and China) and above-peak capital values for its Grade A office assets – an aggressive but not inconceivable scenario. From a capital-management perspective, the low 1.875% yield to maturity also makes sense. This is lower than its average cost of debt of 2% and lower than the cost of its previous CBs issued in 2006 (expiry 2013, yield to maturity of 2.5%). For prudence, we factor in potential dilution from the CBs, including dilution from the CBs issued in 2006, resulting in a 9% increase in the share base. View issuance positively, in conjunction with recent newsflow. Proceeds will be used to refinance debt and/or for acquisitions and general working capital. KepLand has been very active and successful in rendering its excess capital productive in recent months; a trend we believe should be viewed positively in conjunction with the CB issuance. In Sep 10, it announced that it would unlock value from Barclays House in Jakarta through the redevelopment of one of its two buildings. This was shortly followed by the acquisition of a waterfront residential site of 9.3msf in land area in Zhongshan, Guangdong Province of China. When completed, this development will yield over 2,000 villas. We have yet to factor this in pending more details. In October, another four sites were acquired: two in Chengdu China and two in Ho Chi Minh City, Vietnam. KepLand also divested its 33% stake in MBFC (Phase 1) to KREIT for S$1.43bn, acquiring GE and Keppel Towers in return for S$573m. Most recently, KepLand acquired an additional 11.85% stake in OFC for S$107m, bringing its stake to 86%. OFC has 850k sf Grade-A office space, slated for completion by 2011. Known pre-commitment is 67%. Already, management is guiding for doubledigit psf rents for smaller leases under negotiation. We see these initiatives, coupled with the S$500m CB issuance, as a sign of bigger things to come.

Separately, KepLand announcedon 1 Nov that it had sold more than 90% of its 220 units released in a soft launch of Seasons Park residential development in the Sino-Singapore Tianjin Eco-city. ASPs were Rmb11k psm, substantially above our estimate of Rmb6k. The 1,672-unit development, of which KepCorp and KepLand own 45% and 55% respectively, is part of KepCorp’s eco-development project within the Start-up Area in Tianjin. When completed, the development should yield over 5k homes and commercial space of about 7.3msf. We expect stronger prices to drive further ASP upgrades in the later phases.

Overall, we believe positives outweigh negatives in this issuance. The ability to redeploy capital to RNAV-accretive assets should negate the potential effect of dilution. We now peg our target price at parity (10% discount previously) to a lower RNAV estimate of S$5.64 (from S$5.70) on dilution effect, offset by accretion from recent acquisitions and higher China ASPs. With an enlarged balance sheet for acquisition growth and Grade-A office assets for further monetisation, we believe its valuation discount gap will narrow. Despite a better capitalised balance sheet and asset base, valuations have yet to take off and approach its last peak in 2007. KepLand remains our key pick for the sector.

Some say 5.64.... so u wait lor... click

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where did u find the news.....

papers....or newspaper ?

it is normal to have a correction to adjust back to market rate today after the surge !