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Singapore stock market and companies daily report (S-REITs, Yoma Strategic Holdings, Yongnam Holdings) (March 19, 2013)

Contributed by Shares Investment

Fitch: S-REITs Could Face More Risks From Reliance On Debt
Fitch Ratings noted that Singapore real estate investment trusts (S-REITs) are exposed to more risks as they rely more on debt financing, a trend that is likely to continue this year. S-REITs could face various risks such as refinancing risk and exposure to interest-rate shocks. Fitch pointed out that the availability of low-cost debt capital has led to the increasing use of debt to fund asset acquisitions, new developments, asset improvement programmes and unitholder payments. It highlighted that while S-REITs have benefited from falling short-term interest rates in terms of funding costs over the past six years, they may face issues with covering debt payments if rates normalise. In the event of a sudden move to higher interest rates, the gap between asset yields and interest rates would widen owing to the much slower pace at which asset yields are prone to self-correct. REITs here generally have a weak liquidity profile because of a reliance on short-term debt, Fitch said, citing as a reason the short-dated maturity of leases on commercial property, which limits funding options. There are also broader risks for S-REITs where the pace of supply may outstrip demand for space, and a threat of higher vacancy rates looms as a result.
Significance: Fitch expects S-REITs’ debt reliance to accelerate in 2013 and to therefore increase their exposure to a sustained macroeconomic downturn. That said, Fitch believes S-REITs are still fairly resilient and expects revenues to grow across all segments this year underpinned by the strong economic fundamentals of Singapore.

Yoma Moves Into Luxury Tourism
Yoma Strategic Holdings announced the establishment of a new 70:30 joint venture company, Chindwin Holdings with First Myanmar Investment Company, and the proposed acquisitions of several luxury tourism assets in Myanmar. The joint venture company intends to acquire 75 percent of the share capital of Shwe Lay Ta Gun Travels and Tours (SLTG) from Khin Omar Win and Khin San Win for a total of US$10.7 million. SLTG operates the “Balloons over Bagan” luxury tour business in Myanmar and the only hot air balloon operator in the nation. It also intends to purchase a 75 percent interest in 21.16 acres of land for US$3.75 million for the construction and operation of a hotel business, as well as another 75 percent stake in Eastern Safaris for US$0.1 million for adventure tours in Myanmar and Bhutan.
Significance: This new venture follows closely behind the recently announced landmark development plans to establish a luxury five star hotel in the Old Railway Headquarters of Yangon. These ventures will be able to tap on the great opportunities amidst booming tourism sector with tourism arrivals to grow by 30 percent in 2013 from 1.1 million in 2012.

Yongnam To Foray Into Infrastructural Developments
Yongnam Holdings plans to diversify into investing in infrastructural developments via joint ventures with partners that have the relevant expertise of infrastructural developments in Singapore and overseas. The proposed business diversification will leverage on its existing business in the provision of structural steel works, specialised civil engineering and mechanical engineering services. In deciding what investments to make, Yongnam said it will evaluate each investment based on the projected rate of return, the potential costs involved and the profit margins. In connection with the proposed business diversification, Yongnam has joined a consortium comprising JGC Corporation and Changi Airport Planners and Engineers to evaluate the requirements of submitting a tender for the construction and management of Han-thawaddy International Airport in Myanmar.
Significance: Notably, the diversification will enable the group to develop new revenue streams, expand its business and improve its growth prospects as it may offer fresh opportunities for the group to access new business opportunities and prospective customers.