If you think Singapore’s real estate investment trust (Reit) sector has reached its full potential, think again. Though the local market can rightly claim to be Asia’s most developed, it still has considerable room to grow, according to James Fleming, UBS head of equity capital markets for South-east Asia.
The potential is not just in real estate. Infrastructure trusts are even less developed and have immense potential, and many sizeable corporates are seeking cross-border listings, says Mr Fleming.
But the biggest trend, for now, is in real estate.
UBS was the leading player in terms of raising equity capital in 2006, according to Dealogic, and has been involved in several Reit listings, the most recent being that of MacarthurCook Industrial Reit.
What Mr Fleming has observed is a lot of activity happening out of the public eye. Many South-east Asian companies are seeking to sell assets to lighten their balance sheets. Private funds buy the assets and lease them back, warehousing and pooling them. In time, even though it is more difficult in Asia’s fragmented markets than in the US or Australia, these private funds will be merged, and the asset pool securitised into a Reit and sold to the public.
According to UBS, less than one-tenth of Singapore property is securitised, a fraction compared with the US or Australia, where the proportion is closer to three-quarters.
‘The Asia real estate paradigm has just started. We are at the tip of the iceberg,’ says Mr Fleming. His colleague Patrick Lee, who heads the Singapore and Malaysia investment banking team, expects the number of Reits listed in Singapore to rise substantially in the next 12 months.
The same is happening with infrastructure, another sector with low penetration. Again, private funds are acquiring assets to structure a public fund later on. Investing in infrastructure has become a cliche, yet there are virtually no publicly listed Asia-focused infrastructure funds, save for Temasek’s CitySpring.
Currently, private equity is prepared to pay far higher multiples, up to 23 times earnings before interest, tax, depreciation and amortisation (Ebitda) on a recent infrastructure deal, according to Mr Lee. Says Mr Fleming: ‘If I were an infrastructure operator and wanted to monetise, I would seriously consider public versus private valuations today.’ He also says widespread economic growth has led to a broadening of the IPO pipeline over the last six to nine months to include every country in South-east Asia and most sectors. Mr Lee anticipates a growing number of cross-border listings of international, ‘boundary-less firms’, like last year’s BanyanTree.
While the Singapore Exchange (SGX) may still find it challenging to attract government-linked ‘national champions’ from other countries, it is just a matter a time before it attracts sizeable listings from Vietnam, the Philippines, or other countries, says Mr Fleming. This includes large Chinese firms. After Yangzijiang, China’s fourth-largest shipbuilder, raised over $1 billion in capital last month, UBS has received several enquiries from other Chinese firms in other sectors of similar size, according to him.
Yet upcoming deals could be barely enough to feed global appetite for Asian issues, with liquidity driven by cash-generating growth and exacerbated by a less obvious switch in asset allocation by US investors away from their home market and towards high-growth economies abroad.
‘People look at a deal and say, yeah, I want 5 per cent. The dollar amount is academic,’ says Mr Fleming. ‘The biggest complaint we get is: we want more stock.’ Many deals are too small for large portfolio managers, who need to acquire holdings that are large enough to impact their portfolios. For example, he recalls an Asia-based hedge fund with US$3 billion, of which only US$2 billion was deployed.
The excess cash could be comfortably levered up - and they’re not a massive fund, he says.
Source: The Business Times, 02 May 2007
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