SINGAPORE (Sept 27): A subsidiary of Sasseur REIT’s manager is facing a potential lawsuit due to a dispute between its sponsor and a building contractor.
Sasseur REIT announced last evening that Hefei Sasseur Commercial Management Co has received notice legal action from Zhongjian Sanju No.2 Construction Engineering Co in China.
The dispute arose out of a disagreement between the sponsor Sasseur Cayman Holding and ZS2 over the final construction sum payable for the Sasseur (Hefei) outlets, which was completed in May 2016.
ZS2 is claiming a sum of RMB 148.4 million ($29.6 million) plus legal costs. ZS2 has sought and obtained interim orders from the court to freeze some of the bank accounts of Sasseur Hefei although the latter has successfully applied to the same courts to lift the freeze on the key bank accounts.
Sasseur REIT’s manager believes there will not be any disruptions to the operations of Sasseur Hefei and Hefei outlets.
Sponsor Sasseur Cayman is also adamant the ZS2 claims are baseless and without merit, and will vigorously defend the case.
In the sale and purchase agreement for the acquisition of Hefei outlets, the sponsor did undertake to indemnify the manager against claims such as construction payables that were not payable for in the SPA.
“An amount of RMB117.5 million was provided for in respect of the construction payables incurred by ZS2, the claim of RMB148.4 million is RMB30.9 million over the amount provided for in the SPA, which we believe will be indemnified by the sponsor,” says the manager of Sasseur REIT.
In a Thursday flash note, DBS Group Research says the legal action arising from a dispute is “unfortunate” but notes that the manager has been “fast in addressing any potential disruptions”.
“As such, as the bank accounts at Sasseur Hefei have been unfrozen,” says lead analyst Derek Tan, “and daily operations should continue without any material disruptions.”
In addition, if the REIT is indemnified from the RMB30.9 million in claims, there will “not be material impact to the distributions to the REIT”, adds Tan.
As Hefei mall contribute close to 25%-28% of Sasseur REIT’s cash revenues over FY18F-19F, any potential disruption to cashflows and the ability for the onshore entities to pay tenants and repatriate monies back to unitholders to be declared as distributions in Singapore, will not be viewed positively by investors.
“Newly listed, with a short operating history and looking to mint a track record of solid performance to investors, we believe that the timing of this news might dent investor confidence in the near term,” says Tan.
That said, he believes there should be ample safeguards in place to prevent any impact to distributions.
Year to date, units in Sasseur REIT are down 11% to 72 cents.
