Corporate Credit Analyst

Alan Greene

Credit

Lippo Malls Indonesia Retail Trust / Credit

Lippo Malls Indonesia Retail Trust (LMRT SP)

Q1 2018 saw both Viva Industrial (VIT SP) and Lippo Malls (LMRT SP) decide to quit being credit rated. For the Monetary Authority of Singapore (MAS) the decline in rated SGD issuers may be uncomfortable. MAS is keen to see the SGD bond market grow and is offering grants for new issuers to get rated, while the recent Budget indicated more quasi-sovereign issuance to support infrastructure development in Singapore. However, it was MAS that changed the regulations which allowed REITs to exceed debt to assets gearing of 35%, without needing a credit rating.The REITs that remain rated generally have sponsors which are Temasek-linked and thus the ratings - investment grade of course - benefit from implied support, or the REIT's sponsors already enjoy blue chip status in the nation.For the REITs that have shed their ratings, the cost of funds has not increased. The REITs' savings on rating fees are at the expense of Moody's, in particular, which has dominated the S-REIT rating space. Lenders have enough knowledge of these listed vehicles to make their own assessment. Singapore's bond market is split between obvious junk - small businesses in cyclical industries - and TLC investment grade companies, therefore attaining a high BB rating, which is still technically junk, is not helpful.Equally, a low investment grade rating is not welcome by the many REITs looking to perpetual capital instruments as a way to raise debt-like finance but one which enjoys equity treatment under Singapore's tax and accountancy regimes. If the perps are to be rated investment grade at Baa3, then a senior unsecured issuer rating of a minimum Baa1 is needed to allow for the two-notch differential. If the perps are not rated investment grade then the REIT might dispense with all of its rating.

Q1 2018 saw both Viva Industrial (VIT SP) and Lippo Malls (LMRT SP) decide to quit being credit rated. For the Monetary Authority of Singapore (MAS) the decline in rated SGD issuers may be uncomfortable. MAS is keen to see the SGD bond market grow and is offering grants for new issuers to get rated, while the recent Budget indicated more quasi-sovereign issuance to support infrastructure development in Singapore. However, it was MAS that changed the regulations which allowed REITs to exceed debt to assets gearing of 35%, without needing a credit rating.The REITs that remain rated generally have sponsors which are Temasek-linked and thus the ratings - investment grade of course - benefit from implied support, or the REIT's sponsors already enjoy blue chip status in the nation.For the REITs that have shed their ratings, the cost of funds has not increased. The REITs' savings on rating fees are at the expense of Moody's, in particular, which has dominated the S-REIT rating space. Lenders have enough knowledge of these listed vehicles to make their own assessment. Singapore's bond market is split between obvious junk - small businesses in cyclical industries - and TLC investment grade companies, therefore attaining a high BB rating, which is still technically junk, is not helpful.Equally, a low investment grade rating is not welcome by the many REITs looking to perpetual capital instruments as a way to raise debt-like finance but one which enjoys equity treatment under Singapore's tax and accountancy regimes. If the perps are to be rated investment grade at Baa3, then a senior unsecured issuer rating of a minimum Baa1 is needed to allow for the two-notch differential. If the perps are not rated investment grade then the REIT might dispense with all of its rating.

Soilbuild Business Space REIT (SBREIT SP)

Two More S-REITS Drop Their Credit Ratings - Will the SGD Bondmarket Ever Warm to Ratings?