Brief Singapore: Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks and more

In this briefing:

1. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks
2. RHT Health Trust – 40.7% Net Returns Since Jan. Is There Any Upside Left?
3. Yinson Tenders a Lifeboat for Ezion
4. Singapore Property – Luxury Segment Leads Price Decline in 1Q; Property Outlook Remains Shaky
5. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018

1. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks

2. RHT Health Trust – 40.7% Net Returns Since Jan. Is There Any Upside Left?

Since my last insight on RHT Health Trust (RHT SP) on 29^th Jan 2019 – RHT Health Trust – Cash on Sale , investors who bought into RHT Health Trust at S$0.029 per unit would have netted a return on investment of 40.7% if they sell out today, including the cash distribution that they have received in 1^st March.

Since last insight in January, RHT reported major changes to its Board of Directors and Management. The strong background of the new BOD and CEO in investment banking and REIT management will be valuable to RHT as it progresses to transform itself and acquire new business/assets to inject into the Trust.

Key investment thesis remains unchanged. RHT Health Trust is an event-driven play and the catalyst will be the announcement of an RTO deal to inject new assets/business into the Trust. This will be the key driver to further upside in RHT. 

Proposed investment strategy at this stage is to hold on to the investment in RHT and look for opportunities to add if RHT trades lower. Target entry price is S$0.016 per unit, which translates to a NAV discount of 27.3%.

3. Yinson Tenders a Lifeboat for Ezion

Long-suffering lifeboat market play Ezion Holdings (EZI SP) has received a bail-out from Malaysia’s Yinson Holdings (YNS MK).

Yinson’s proposal is two-fold:

1. A conditional debt conversion agreement to capitalise all of the “relevant debt” of US$916mn via the allotment and issue of up to approximately 22,573,570,909 new ordinary shares of Ezion at an issue price of S$0.055/share (27.9% premium to last close).
2. A conditional option agreement for the proposed grant by Ezion of 3,360,495,867 non-listed and transferable share options to Yinson at the exercise price of S$0.0605 per option Share. 

This shareholder structure will take the following shape, with Yinson holding 85.9% of shares out after the conversion and 87.5% after both the conversion and the exercise of the share options.

However … as per the more detailed Bursa announcement:

It is the intention of YEPL (wholly-owned sub of Yinson) to acquire up to US$916mn of the Relevant Debts for a consideration to be agreed with the Designated Lenders. Tentatively, YHB (Yinson) expected its cash outlay shall be in the region of USD200mn and some EHL (Ezion) Shares that will give YEPL a shareholding of not less than 70% in EHL at the point of the completion of the Proposed Debt conversion and Subscription. In any event, assuming all convertible securities of EHL are converted, YHB expects its eventual shareholding in EHL shall be a controlling stake of at least 51%.

Ezion is also in negotiation with the major secured lenders to restructure its existing debts which would result in the conversion of certain debts to redeemable convertible preferences shares to be issued by Ezion.

As this is effectively a hybrid takeover, there exist a number of conditions required to complete this proposal. Of importance is the waiver from the Securities Industry Council of Singapore for Yinson not to make a mandatory general offer for Ezion under Rule 14.1 of the Takeover Code, as the share subscription takes Yinson’s stake >30%.

On Ezion

Ezion develops, owns, and charters offshore assets to support offshore energy markets, via three key segments:

• Lifeboats/liftboats – these are self-propelled rigs involved in the production and maintenance of the O&G and windfarm industry. This segment accounted for 57.9% of revenue in FY18.
• Jack-up rigs – engaged in non-self propelled rigs involved in the production and maintenance of the O&G and windfarm industry. The segment accounted for 34.1% of revenue in FY18.
• And offshore support logistic services, accounting for 7.5% of revenue in FYT18.

Ezion is primarily Asian focused with revenue split between Singapore, India, and the rest of Asia as to 8%, 5.3% and 54%. The Middle East and Africa account for 15.6% and 15.2% respectively.

Fundamentals

• Revenue declined by US$125mn in FY17 due to a reduction in charter rates and delays in re-deployment of the Ezion’s liftboats due to working capital constraints. The loss before tax was exacerbated by impairment losses totalling US$897mn.
• Revenue declined by US$74mn in FY17 due to a drop in the utilisation rates of liftboats and jack-up rigs. FY18 also saw an increase in impairments loses of US$84.5mn, while loses in associate and jointly controlled entities increased to US$39mn in FY18 from US$16mn in FY17.

Effect on NTA from the conversion/options

Assuming the subscription and options were completed on 31 December 2018, the effects of the Ezion’s NTL/NTA per share would be as follows: 

Peer Comparisons

Substantial Shareholders of Ezion

4. Singapore Property – Luxury Segment Leads Price Decline in 1Q; Property Outlook Remains Shaky

Singapore’s Urban Redevelopment Authority (“URA”) announced the flash estimate of the private residential Property Price Index (“PPI”) for 1Q 2019 yesterday.

Flash estimate for private residential PPI indicated an acceleration in price decline in the Singapore residential market in general.  Private residential PPI decreased 0.9 percentage point from 149.6 points in 4th Quarter 2018 to 148.7 points in 1st Quarter 2019.

Non-landed private residential properties in the Core Central Region (“CCR”) were the worst performing segment, with prices decreased by 2.9% QoQ, compared to the 1.0% decrease in the previous quarter.

The softening of prices in the luxury residential segment did not come as any surprise. If weak sales persist, developers may eventually be forced to write-down the value of their high-end development properties, reduce selling prices to clear their luxury inventories. 

Mass-market residential property segment has always been relatively more defensive in comparison to the mid-range and high-end property segment but in recent times, some signs of weakness have been observed in the mass market segment.

In view of the current outlook in the Singapore residential market, I reiterate my BUY recommendation on Sing Holdings (SING SP) (due to its defensive traits and growth prospects) with a target price of S$0.66 per share.

5. Embassy Office Parks REIT Trading Update – Lowest Volume Traded for Any Indian Listing Since 2018

Embassy Office Parks REIT (EOP IN) raised US$665m in its IPO, making it the first REIT listing for India.

In my previous insights I’ve covered the company background, its projected growth, compared it to its main listed peer and other yield assets in India: 

• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish
• Embassy Office Parks REIT – Comparison with AIT and a Look at the Required Yield, and
• Embassy Office Parks REIT IPO – FY19 Revised Down, Yield Propped up by Zero Coupon Bond

In this insight, I will re-visit some of the deal dynamics, comment on share price drivers and provide a table with implied valuations.