Bondholders are likely unaffected by ESR’s privatisation offer

• On 5 December 2024, ESR Group Limited (“ESR”) announced a privatisation offer led by a consortium, consisting of (1) Starwood Capital Group, (2) Sixth Street, (3) SSW Partners, (4) Warburg Pincus, (5) Qatar Investment Authority and (6) the founders of ESR, Mr. Shen and Mr. Gibson.
  
  
• The consortium offers either cash of HKD 13 for every ESR share or the rollover of shares into the new privatised entity. The complete details regarding the offer may be found on the Hong Kong Stock Exchange announcement page (here).
  
  
• The announcement indicated that certain shareholders have elected for the cash offer instead of rolling over their shares. This includes OMERS (a portion of their shares), Mr. Lim Hwee Chiang, Straits Trading Company and APG Strategic Real Estate Pool. Meanwhile, Sumitomo Mitsui Financial Group’s full holdings and OMERS’s remaining interest (~70%) will be rolled over into shares of the privatised holding company.
  
  
• We expect most, if not all, of the minority shareholders of ESR to opt for the cash offer, given the shares of the privatised entity would be highly illiquid, alongside a relatively attractive offer of HKD 13 per share. The offer is stated to be at a 55.7% premium to the closing price prior to the consortium’s initial announcement of a potential privatisation dated 24 April 2024.
  
  
• Under the new privatised entity (assuming all minority shareholders opted for the cash offer), the shareholding interests of the consortium and rolled-over shareholders will be as below –

Interested party	Approximate proportion of shares in the privatised entity
Warburg Pincus	26.17%
Starwood Capital Group	23.43%
Sixth Street	10.28%
SSW Partners	10.26%
Mr. Shen	7.48%
Qatar Investment Authority	7.16%
Redwood	0.02%
Mr. Gibson	0.01%
Rollover shareholders	15.19%
Source: ESR’s announcement of the privatisation proposal on HKEX. As of 5 December.

•  We are not expecting a direct impact on bondholders, other than potentially less frequent updates of financial statements given by the privatised entity.
  
  
• While it was stated that additional debt might be taken for the offer, we note that the debt would be undertaken by the consortium – and not by ESR, i.e. ESR’s credit metrics and profile remains status quo.
  
  
• Typically, unlisted companies provide updates to their financial statements on a less frequent basis. We have expectations that ESR will continue to provide financial updates on at least an annual basis, as it has done so for ARA Asset Management’s annual financial statement after acquiring it in 2022 and becoming a fully-owned subsidiary of ESR.
  
  
• Despite the change in shareholders and respective interests, we note that a fair proportion of the ownership is still owned by Warburg Pincus and Mr. Shen. As a result, we do not expect changes to the ESR’s business strategy given their continued significant ownership. Concurrently, the proposal implied the intention to follow through with the existing initiatives by ESR, that would be made easier with the privatisation of the company.
  
  
• For ESRCAY 5.100% 26Feb2025 Corp (SGD) bondholders, we are expecting virtually no impact as ESR have sufficient liquidity and refinancing capability to redeem the bonds upon maturity, while the subsequent financial update will be past the maturity date.
  
  
• For ESR’s perpetuals - ESRCAY 5.650% Perpetual Corp (SGD), ARASP 5.650% Perpetual Corp (SGD), ARASP 5.600% Perpetual Corp (SGD),
  
  
• As ESRCAY 5.650% Perpetual Corp (SGD) does not have a “Change of Control” clause, the greatest concern for the bondholders will be lesser transparency and lower frequency of ESR’s financial updates. We will continue to monitor this development and provide updates when further information becomes available.
  
  
• Both ARASP 5.650% Perpetual Corp (SGD) and ARASP 5.600% Perpetual Corp (SGD) have a “Change of Control” clause embedded within, but it is unlikely to be triggered. Since the consent solicitation in October 2021, the clause now includes “ESR Cayman Limited” under the required ownership of the issuer. Our understanding is that as ARA Asset Management (which has recently changed its name to ESR Asset Management Limited in July 2024) remains a wholly-owned subsidiary of ESR and therefore the “Change of Control” clause will not be triggered.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in ESRCAY 5.100% 26Feb2025 Corp (SGD) and ESRCAY 5.650% Perpetual Corp (SGD), and the analyst who produced this report hold a NIL position in the abovementioned securities.

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