Yesterday, CAPL priced its proposed S$750m 2023 convertible bond issue at 1.95% yield to maturity with a conversion price of S$4.212 (30% premium over the last traded price). Given the pricing and the fact that the group increased the issue size from S$600m to S$750m during the book building, we believe this points to firm demand for the issue. The group announced that they will use approximately 95%-100% of the proceeds to refinance its existing indebtedness and has set up an invitation to repurchase for cash its existing CBs due in 2016 and 2018. We see this to be a positive move that would further optimize the group’s debt structure, which will have impact in reducing its interest payments and lengthening its average debt expiry.
Launch of Sky Vue condominium in Bishan
We also look forward to CAPL’s new condominium launch – the 694- unit Sky Vue in Bishan, Singapore. CapitaLand holds a 75% equity stake in the project, with the remainder held by Mitsubishi Estate Asia Pte. Ltd. Sky Vue opened for previews last weekend and is priced at S$1.38k – S$1.55k psf. This is about 5%-10% lower than the adjacent Sky Habitat project (also owned by CapitaLand) and we like that the group has taken a realistic approach by
pricing this project to move. While we estimate, as a result of lower pricing, fairly slim profit margins for Sky Vue – in the low teens – we believe that a strong launch would be taken positively by the market, particularly now that the group has a total unsold exposure of over a thousand units in the Bishan locality in Sky Habitat (340 units unsold) and Sky Vue (694 units unsold).
Maintain BUY
In light of the subdued outlook for the domestic residential sector, we favor large-cap developers with strong balance sheets and diversified exposure across regional real estate markets. Maintain BUY on CAPL with an unchanged fair value estimate of S$3.77.
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