Daily Brief Financials: ESR-LOGOS REIT, Rakuten Bank, China South City, Binance Coin, Hopson Development and more

• ESR-LOGOS REIT (EREIT SP) is looking to raise US$114m (S$150m) in a private placement. The proceeds will be used to fund potential acquisitions and finance the redevelopment of its properties. 
• Post offering, there will also be a US$114m (S$150m) non-renounceable preferential offering, which will bring the total gross proceeds of the equity fund raising to US$228m (S$300m).
• The deal is a relatively large one to digest at 46 days of ADV and 6.4% of current mcap. We’ll talk about the deal dynamics.

• Rakuten Bank, the online banking arm of Rakuten Inc (4755 JP), aims to raise around US$500m (estimated) in its Japan listing in April 2023. 
• RB is the largest internet bank in Japan, by number of accounts. As of Mar 2023, it had 13.39m deposit accounts with a total deposit base of JPY8.6tn. 
• In this note we take an early look at the IPO and talk about the not-so-positive aspects of its past performance.

We view China South City (CSC) as “High Risk” on the LARA scale given increasing refinancing risk, with significant maturities in the next 12 months. The company’s capital-market access is limited, amid the recent volatile market conditions and heightened yields for the existing bonds. We also note the risks associated with: [1] CSC’s weak financial risk profile; [2] the inherent volatility associated with commercial developments; and [3] potential regulatory changes, including delays in government-led support for infrastructure projects. The company will be increasingly reliant on asset disposals or shareholder support for future payment, especially as property sales have deteriorated.

That said, positives include the: [1] restructuring and introduction of Shenzhen SEZ Construction and Development (SZCDG) as the single largest shareholder following a capital injection in H1/22-23; [2] shift to fast-churn property sales; [3] recurring income from investment properties; [4] above-average, albeit declining, operating margins, thanks to the cheap land bank; and [5] decent geographical diversification in regional centres.

Our fundamental Credit Bias on CSC is “Negative”, given the expected slower recovery in contracted sales for 2023. That said, the company should be able to leverage its relationship with SZCDG for more strategic co-operation and improved access to onshore funding, thanks to its quasi-SOE status. We will look to reinstate a “Stable” Credit Bias on evidence of a turnaround in sales.

Controversies are “Immaterial”. We believe the Chinese property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and the satisfaction of homebuyers’ requirements. We believe that governance risks are more significant, due to the sector’s generally low transparency and weak internal controls. The ESG Impact on Credit is “Moderately Negative”, mainly owing to CSC’s corporate governance. We highlight that the extensions sought for two bonds due in 2022, and the subsequent extensions for all offshore bonds in July, indicate increasing governance risks.

• The crypto industry was again shaken this week when news came out that the NY Department of Financial Services (NYDFS) had ordered Paxos to stop issuing BUSD, with an NYDFS spokesperson saying Paxos “violated its obligation to conduct tailored, periodic risk assessments and due diligence refreshes of Binance and Paxos-issued BUSD customers to prevent bad actors from using the platform.”
• Additionally, it was revealed that the Securities and Exchange Commission (SEC) sent a Wells notice to Paxos, informing the company that the SEC is considering legal action against Paxos, alleging that BUSD is a security. (I’ve offered my thoughts on the regulatory aspect of this here.) 
• We’ve covered BUSD’s growth and market share extensively in previous Data Debriefs, noting that about 35% of Binance volume is denominated in BUSD and it quickly grew to the third largest stablecoin by market cap

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Alam Sutera Realty
• Hopson Development