Oxley launches new 3Y SGD bonds at a final price guidance of 6.9%

Note: This article was first published on bondsupermart.com on 30 Jun 2021

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In the face of elevated housing prices, a manpower supply crunch and tighter border measures, Oxley Holdings Limited (“Oxley”) is proposing to issue new 3-year SGD bonds at a final price guidance (“FPG”) of 6.9%. After allocations, the new issue will be a fresh addition to the high yield space of the SGD market.

The construction sector in Singapore has been affected by the recent manpower crunch as tighter border measures restricted the supply of migrant workers to complete their projects. In view of the situation, authorities recently extended temporary relief measures to support developers in their construction timelines so that properties may be built in a timely manner. Under the requirements of the PCP, ABSD and QC regimes, developers have to sell and complete the construction of residential projects within a specific time or face financial penalties.

About the bonds

These fixed rate bonds will be issued under the terms of the USD 1 billion guaranteed Euro Medium Term Note Programme. Bonds will be unsecured and ranked pari passu with all other and future unsecured obligations of the issuer. Oxley Holdings Limited is the guarantor while DB International Trust (Singapore) Limited is the trustee of the notes.

Under the terms of the offering circular, the guarantor has to maintain a consolidated tangible net worth of not less than SGD 500m and a ratio of consolidated total borrowings to consolidated total assets of not more than 0.7. If the proportion of consolidated borrowings to shareholder’s equity breaches 3:1, Oxley will not pay dividends or cash amounting to more than 30% of Consolidated EBITDA.

Bondholders may sell the note back to the issuer at 101 in a Change of Control event: (1) If the Permitted Holders - Mr Ching Chiat Kwong, Mr Low See Ching, spouses, relatives, affiliated persons, controlling shareholders – own less than 51% of Oxley, (2) adopt a liquidation or resolution plan for the Oxley group or (3) sell, transfer, dispose all or a significant part of the group’s assets to anyone other than a Permitted Holder. Bondholders may also sell the notes back at par upon the cessation or suspension of trading of shares.

About Oxley Holdings Limited

Oxley is a frequent issuer in the SGD high yield market. With a land bank of 500,000 square metres (“sqm”) as at 31 May 2021, Oxley is a Singapore-listed mid-sized property developer with an approximate market capitalization of SGD 970.2m.

Since its incorporation in 2010, the company completed 33 property developments and launched more than 48 projects across different countries such as the Ireland, the United Kingdom, Malaysia, Cambodia and China. Mr Ching Chiat Kwong, as Executive Chairman and CEO and Mr Eric Low See Ching (deputy CEO and executive director) own 42.5% and 28.3% of the company’s shares respectively as at 31 Dec 2020.

Apart from managing international and Singapore real estate projects, Oxley has a 9.36% stake in Aspen (Group) Holdings Limited, a Singapore-listed company with a market cap of around SGD 167.9m.

Nestled within its SGD 4.70 billion of total assets, Oxley owns the Novotel and Mercure hotels on Stevens, which are functioning as stay-home notice dedicated facilities in Singapore. The group also has an interest in other hotels in Malaysia – Jumeirah Kuala Lumpur Hotel, SO Sofitel Kuala Lumpur Hotel and Shangri-La Hotel in Phnom Penh, Cambodia.

Half-year financial performance

Covid-19 has presented a set of challenges for many companies and Oxley is no exception. Social distancing measures were enforced and many countries entered into lockdowns, thereby limiting manpower supply and slowing down development activities. Nonetheless, more individuals began working from home and there was an uptick in residential property demand, leaving the Singapore housing market in resilient form.

Amidst the low interest rate environment and easing of circuit breaker measures, Oxley managed to sell close to 90% of its units in Singapore. As we understand, the company projects to sell at least 95% of the units by the end of the year. The remaining effective gross development value of its local projects amounts to SGD 590m, which could provide ~SGD 60m of additional liquidity at a 95% sell-through rate. Outside of Singapore, more than 99% of the Royal Wharf project has been sold while 86% of the retail, residential and office components in Cambodia have been taken up by investors.

In the 6-month period ended 31 Dec 2020 (“1HFY21”), revenue increased 25.5% YoY to SGD 745.3m. Revenue from continuing operations was up 9% from SGD 534m to SGD 582m. Gross profit margin however has been on a downtrend, falling from 16.0% in 1HFY20 to 13.9% in 1HFY21. Finance costs dropped from SGD 80.9m to SGD 56.4m and this contributed to a 209.9% jump in profit. Estimated EBITDA, which excludes non-recurring items improved slightly to ~SGD 81.0m in 1HFY21 (1HFY20: ~SGD 79.0m).

Operating cash flows before changes in working capital increased from SGD 64.9m to SGD 99.8m. Due to a material drop in the carrying values of its development properties and trade receivables from a year ago, net cash flows from operating activities swung from a loss of SGD 87.0m in 1HFY20 to a gain of SGD 268.1m in 1HFY21.

Corporate developments since December 2020

Oxley will report results for 2HFY21 in August but a few events have happened since the last reporting period in December 2020. The company appointed voluntary administrators for Pindan Group, its Australian subsidiary that was classified as an asset held for sale as at 31 Dec 2020.

In January this year, USD 72m of convertible notes were issued to a third party in connection with an investment from Dignari Capital Partners fund. In April, the company paid down the OHLSP 6.375% 21Apr2021 Corp (USD) and issued 199,810,898 of warrants to a lender for the payment of finance costs. This morning, the company announced a proposed sale of its overseas land to a reputable buyer at a proposed price of approximately SGD 100m.

Credit highlights and assumptions

Excluding the disposal group held for sale, Oxley would have SGD 2,702m of total borrowings as at 31 Dec 2020. This accounts for 57.6% of its total assets but the ratio has dropped from 58.8% in June 2020. Total borrowings over total equity is very high at 254% but still below the 300% threshold mentioned earlier. Even though gearing is high, Oxley is able to service its interest expense with estimated EBITDA over interest at ~1.8x in 1HFY21, up from ~1.2x in 1HFY20.

Looking at its debt maturity profile on 30 Apr 2021, there are SGD 1,342m of borrowings due in the financial year ending 31 Jun 2022 (“FY2022”), which exceeds its cash position of SGD 227m (excluding the disposal asset held for sale) at 31 Dec 2020.

Within its short term borrowings, SGD 733m of the borrowings due in FY2022 is represented by project debt, or debt that will retire upon the completion of its various development projects. An investment property loan of SGD 702m tied to the Novotel and Mercure hotel will mature in FY2023 but Oxley has guided that it intends to refinance the loan upon maturity.

Figure 1: Debt maturity profile

In respect to the completion of its Singapore projects, the developer may collect the proceeds from its residential projects as they achieve construction milestones and obtain their temporary occupation permit (“TOP”). Barring construction delays and as shown in Table 1, the group anticipates that all of its domestic projects will obtain TOP by 30 Jun 2023, translating to a total effective future progress billings of SGD 1,629m. If completed on time, the amount of progress billings would cover its SGD 1,342m of debt due in FY2022.

Table 1: Overview of Oxley's development projects

Project	TOP	Units sold / Percentage sold	Future progress billings in SGD m (effective stake)	Remaining Gross Development Value in SGD m (effective stake)
1953	2Q22	46/72	44	50
Affinity at Serangoon	4Q22	962/1057	327	73
INSPACE	2Q22	21/84	13	49
Kent Ridge Hill Residences	2Q22	451/548	418	225
Mayfair Gardens	2Q22	177/215	189	60
Mayfair Modern	2Q22	123/171	135	86
Parkwood Residences	2Q23	1/18	2	27
Riverfront Residences	4Q22	1446/1478	343	20
Sea Pavilion Residences	TOP-ed	24/24	13
Sixteen35 Residences	TOP-ed	60/60	23
The Verandah	3Q21	170/170	120
The Addition	TOP-ed	26/26	2
Royal Wharf*	2018-2020	99%	11	6
Dublin Landings**	2019-2021	99%	88	9
The Bridge	2018	92%	1	21
The Palms	2021	37%	22	68
The Peak	2020-2022	86%	97	76
Oxley Towers Kuala Lumpur	2023	19%	127	678
Mozac	2023			38
Gaobeidian	TBA	2%	24	1076
Source: Company, iFAST compilations. Data as of 31 May 2021. Progress billings are as of 30 Apr 2021. * excludes residential units reserved by buyers and pending completion procedures before recognizing as revenue. ** includes commercial units in No. 4 and No. 5 Dublin Landings and residential units.

We continue to believe that Oxley will be able to pay down its bonds. To meet its short-term financial obligations, the company may utilize its SGD 227m of cash, potential SGD 100m from the land sale, redeem project debt using its ~SGD 1,629m of progress billings, refinance its SGD 702m investment property loan and access the proceeds from this bond offering. If required, it may also divest its investment properties - Novotel & Mercure hotels, The Rise@Oxley, Space@Tampines and Floravista – which have a gross asset value of SGD 1.1 billion.

Our thoughts on pricing

The 6.9% final price guidance for Oxley’s 3-year SGD issue is attractively priced at 613 basis points (“bps”) above the 3-year SGD Swap Offer Rate (“SOR”). The price guidance would provide the highest yield among bonds of a similar maturity (Figure 2).

Figure 2: Relative valuation of comparable high yield SGD real estate bonds

The 6.9% FPG provides a 120bps pickup from the OHLSP 5.700% 31Jan2022 Corp (SGD) and is comparable to the yield of the OHLSP 6.500% 28Feb2023 Corp (SGD), although there may not be any offers for the OHLSP 6.5% 2023’s at the moment.

Figure 3: Relative valuation of comparable notes using credit spreads

In spite of its high debt load, Oxley still has a reasonable interest servicing ability with a good repayment visibility of its bonds. We are comfortable with the company’s liquidity profile although we cannot deny that it is very dependent on the progress of its construction projects and its ability to refinance obligations. The company reports in August and we will provide another update on the issuer.

The OHLSP 6.900% 08Jul2024 Corp (SGD) is now available on Bond Express, at lot sizes as small as 5,000!

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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