CapitaLand eyes more muscle for growth

Property giant seeks $3.07 billion from existing shareholders

IN A move to position itself for “opportunities in distressed assets”, property giant CapitaLand is looking to raise $1.84 billion in a rights issue that analysts say could be a precursor of more fundraising exercises for developers.

South-east Asia’s largest property developer and its subsidiary – CapitaMall Trust (CMT), which has planned a separate rights issue of $1.23 billion to repay borrowings – are seeking a total of $3.07 billion from existing shareholders.

The announcement comes amid a sharp profit slump: CapitaLand yesterday revealed that fourth-quarter earnings fell 88.4 per cent from $674.7 million to $78 million, due largely to a $103.9 million revaluation loss compared to a $470 million revaluation gain a year earlier. Still, the firm will pay shareholders7 cents a share in dividends, including a special payout of 1.5 cents.

Major shareholder Temasek Holdings is expected to subscribe for as much as 39.7 per cent of CapitaLand’s rights issue, in line with its stake in the developer.

CapitaLand chief executive and president Liew Mun Leong stressed that the company had the financial strength to weather the global economic uncertainties. Gearing is low, at 0.47, while liquidity is strong with $4.2 billion of cash on the balance sheet. The aim of the rights issue, he said, is “pre-emptive” to strategically enhance the company’s “financial flexibility”.

Acquisition opportunities in markets such as Singapore, China, Japan and Vietnam, are being studied, said Mr Liew. After DBS Group Holdings’ rights issue announcement in December, CapitaLand is the second major Singapore company to do so.

CIMB-GK analyst Donald Chua believes funds raised by CapitaLand will be used “first and foremost” to shore up balance sheets. Pointing to its capital needs, including $660 million in borrowings due for refinancing in unit Australand, Mr Chua said the funds could be used to “take care of all the capital expenditure commitments” first before making any acquisitions.

He also said it was possible for CapitaLand’s move to spur other developers to follow suit: “Developers have many things to think of right now – writedown is one, potential defaults by the deferred payment scheme guys is another one. I wouldn’t be surprised (if there are more), especially those that are highly leveraged.”

Analysts picked China as the most probable destination for CapitaLand to go shopping. Daiwa Institute’s investment analyst David Lum described China as having “more opportunities than anywhere else”. Kim Eng analyst Wilson Liew agreed: “China has been one of their key markets. And in the last one year, prices have been correcting quite sharply and smaller developers who runs into cashflow problems could be one of the targets.”

Property prices in other markets, on the other hand, are “not distressed enough”, said Mr Liew. However, if the downturn lasts for the next year in emerging countries, there could be companies with assets up for distressed sales, he added.

CapitaLand’s net profit for the year ended December fell 54.3 per cent from $2.76 billion a year earlier to $1.26 billion, while revenue slid 27.4 per cent from $3.79 billion to $2.75 billion on lower sales.

Source : Today – 10 Feb 2009

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