Moody’s Investors Service said on Wednesday it placed Frasers Centrepoint Trust’s Baa1 issuer rating on review for downgrade after the trust’s announcement it entered deals to acquire an around 17 percent stake in PGIM Real Estate AsiaRetail Fund.
In late February, Frasers Centrepoint Trust said it entered deals to buy 90,346 shares in PGIM Real Estate AsiaRetail Fund for an aggregate S$342.5 million via 12 separate agreements with certain shareholders.
PGIM Real Estate AsiaRetail Fund, an open-end private investment vehicle, is the largest unlisted retail mall fund in Singapore, and it owns and manages six malls near MRT stations, as well as a Singapore office property and four malls in Malaysia.
The deals will be funded first via a bridging loan, which is expected to be repaid by either a term loan or a combination of a term loan and equity, the ratings agency noted.
“The rating could be downgraded if FCT fails to employ a prudent funding mix that ensures headroom within its Baa1 rating,” Moody’s said in the statement.
Moody’s said that the acquisition, assuming it’s 60 percent funded by debt, will increase the trust’s total borrowings by around S$205.5 million and weaken its leverage ratios.
The review will focus on whether the transaction proceeds according to plan, the funding mix to repay the bridging loan, the incremental cash flows from the PGIM Real Estate AsiaRetail Fund, and the trust’s strategy for the fund once the deal is completed, the ratings agency said.
Saranga Ranasinghe, a Moody’s assistant vice president and analyst, said that the proposed deal will improve the trust’s portfolio diversification, but it also brought other risks, noting FCT will have less control over the fund’s strategy than with previous acquisitions, which involved full ownership of the assets.