UPDATE: Boustead Projects, investors to acquire S$110M defaulted notes backed by Orchard Hills property

Singapore one dollar bill

This item was originally published on Thursday, 12 August 2021 at 11:59 a.m. SGT; it has since been updated with comments from Boustead Projects. 

Boustead Projects’ wholly owned subsidiary BP-Real Estate Investments, along with Roark Capital and Lim Teck Lee Investments, have entered a deal to acquire S$110 million in defaulted notes backed by Singapore’s Orchard Hills property for S$117 million, the Singapore-listed company said Thursday.

“The proposed notes purchase will be beneficial for the company as it generates a good financial return and is adequately secured,” Boustead Projects said in the filing. “The purchasers may also potentially take legal and beneficial ownership of the property.”

The notes, which were issued by SC Aetas (Cayman) and are secured by its shares, are being sold by Onward Capital, Fabia Enterprises, Good Crown and Key Trading, Boustead Projects said in a filing to SGX.

SC Aetas (Cayman) owns the property at 30 Bideford Road, Singapore, known as Orchard Hills/Orchard Hills Residences, which has an 18-storey mixed-use development including hospitality, healthcare and commercial areas, with a carrying value of S$720.19 million, Boustead Projects said. Orchard Hills is not losing money nor does it have a net liability position, the filing said.

Once the deal is complete, BP-Real Estate Investments will hold 50 percent of the notes, while Roark Capital and Lim Teck Lee Investments, which are both investment holding companies of private investors unrelated to Boustead Projects, will hold 25 percent each, the company said. The consideration will be paid in proportion to ownership stake, the filing said.

The notes were issued 30 July 2019, with a rate of 13 percent per annum, and had an original maturity date of 12 months, which was extended to end-November 2020, with the issuer able to redeem the notes at any time for 100 percent of the principal.

However, the notes are currently in default on payments of interest and principal, which, under the original terms, means the interest rate should rise to 18 percent per annum, the filing said.

Notes purchased at discount

Janet Chia, manager for corporate marketing and investor relations at Boustead Projects, told Shenton Wire via email that while the notes are technically in default based on passing the maturity date and being unpaid, no actual default was declared by the previous noteholders. Chia said the notes are being purchased at a discount to the principal and accrued default interest.

“Should the issuer, who will be presented with time and understanding on our part as long as the issuer is cooperative, not be able to repay the debt directly, then that may be the time when the property comes into play.  However, we have always looked at a situation where the debt itself should represent good returns, without yet considering returns that may come with the actual acquisition of the property or a sale of the property on the open market,” Chia said.

“Taking into account the amount lent by senior secured creditors, our own understanding of the amounts owed to unsecured creditors and our acquisition price for the notes, we are comfortable with the mitigation of downside risks,” she said. Chia declined to disclose how much was financed by the senior secured creditors or the amounts owed to unsecured creditors.

If ownership of the property is taken, the deal will benefit Boustead Projects’ property investment and fund management business by expanding and diversifying the property portfolio and increasing revenue streams, the filing said, adding this would trigger an additional S$12.29 million in consideration.

On a pro forma basis, assuming the deal were to be completed on 1 April 2020, Boustead Projects’ earnings per share for the fiscal year ended 31 March 2021 would have been 45.1 Singapore cents, compared with 42.3 Singapore cents reported for the period, the filing estimated.

The deal is expected to be completed Friday, Boustead Projects said.