SINGAPORE (July 2): The Monetary Authority of Singapore (MAS) is reviewing the current leverage limit of 45% for Singapore-listed REITs or S-REITs to give them the flexibility to optimise their capital structure.
This was one of the amendments to the Code on Collective Investment Schemes (CIS Code) proposed by MAS which is also seeking public feedback on the changes.
MAS says one possibility is to use a combination of leverage limit and minimum interest coverage requirement -- a measure of the ability of a REIT to service its debt obligations from regular sources of income -- to determine the amount of leverage that REITs should be allowed to take on.
Under this approach, MAS says REITs may take on higher leverage if they are able to meet a minimum interest coverage ratio (ICR). This will provide REITs with more flexibility to optimise their capital structure when bidding for assets, with the minimum interest coverage requirement serving as an additional safeguard.
One option is to allow a REIT’s leverage to exceed 45% but not more than 50% if the REIT has a minimum ICR of 2.5 times after taking into account the interest payments arising from the new debt.
It is also proposing a REIT that has demonstrated good financial discipline -- such as having a higher ICR threshold -- to be allowed a higher leverage, say 55%.
Separately, MAS wants to streamline the fundraising process for REITs by removing the requirement for REITs to submit a notification obtain a “Restricted Scheme” status when they make an offer of units to accredited and other investors.
MAS says the removal will make the fundraising process for REITs more efficient, and bring it in line with the fundraising process for companies and business trusts.
Currently, a REIT that intends to raise funds from the general investing public must first be authorised by MAS under the authorisation regime and must issue a prospectus that is registered by MAS.
MAS notes that the notification requirements make the fundraising process for REITs more cumbersome than that for companies and business trusts in the pre-IPO cornerstone process and when undertaking private placements to raise funds following IPO.
All written comments have to be submitted by Aug 1 via email to reits@mas.gov.sg using the template MAS has provided.
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