On June 1, EC World REIT’s (ECW) manager announced that it has entered into an agreement with its offshore lenders to extend the maturity of its offshore facilities comprising $299.95 million and US$86.78 million to April 30, 2023. These loans were last renewed on June 28, 2019.
ECW’s onshore facilities of RMB906.5 million mature in July this year and ECW’s manager is in discussions with onshore lenders to extend the maturity of these loans also to April 30, 2023.
ECW’s manager ominously announced that sponsor Forchn Holdings Group Co will ensure that at least 25% of the principal ammount of its outstanding offshore facilities are repaid by Dec 31, 2022 whether by acquisition of asset(s) of EC World REIT and/or its subsidiaries or otherwise. This means that -from the REIT’s perspective - a property is likely to be divested to raise the monies to repay 25% of the offshore loan.
In an update, DBS Group Research sounds an optimistic note, saying “Worries of EC World REIT’s refinancing “issues” have proven to be unfounded, in our view. That said, the tenure of the refinancing of the offshore facilities of 75% of its total loans of $706 million appear to be a short term extension with another refinancing discussion to happen with the lenders again in one year’s time. That said, we notice a provision this time round that the offshore lenders have required to downsize the outstanding loan quantum by 25% through asset sales by Dec 2022.”
To be sure, EC World REIT is not the only REIT with Chinese assets that is facing challenges with refinancing. Property trust Dasin Retail Trust’s loans are also extended for short periods at a time. In fact, Dasin Retail Trust has just made an SGX filing where its manager divested 7 million units at 27 cents, versus its net asset value of $1.40.
Similarly, ECW’s so called relief rally, which DBS Research is anticipating, has yet to materialise. At its current price of 64 cents, it is trading at 0.69 times NAV. Some investors are concernd that the ECW’s portfolio relies too heavily on the sponsor and its affiliates for its revenue. As at Dec 31, 2021, some $105 million of revenue out of a total of $125 million is from the sponsor and its affiliates as reported in its annual report.
