A group of minority investors are seeking to take back control of the management of Dasin Retail Trust CEDU (DRT) through the internalisation of DRT’s trustee-manager.
On Nov 23, 15 investors who claim to hold over 10% of the units in the trust are calling for an extraordinary general meeting (EGM) to do so. The investors have served a requisition notice to DRT’s board to demand that an EGM be convened to approve the internalisation.
Unlike Sabana Industrial REIT, the internalisation of DRT’s current trustee-manager may be an easier task than the Sabana internalisation. For one thing, the internalisation of a trustee-manager of a business trust has been done before in the case of Croesus Retail Trust.
Secondly, it is easier to internalise a trustee-manager that has already been set up rather than apply for a capital market’s licence with the Monetary Authority of Singapore to set up a new trustee-manager. The only issue could be staffing.
Thirdly, Sabana Industrial REIT’s internalisation requires a change of the trust deed which does now allow the REIT to hold a management company. Assuming that DRT’s business trust is set up in the same way as Croesus Retail Trust, the trust deed may allow for DRT to own the trustee-manager.
The main challenge for the unitholders is the related party transactions where the anchor tenants in a couple of malls are related to the sponsor.
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Unitholders upset about value destruction
“Investors believe that a trustee-manager which is controlled by DRT will be fully aligned with unitholders’ interests,” reads the statement sent by a unitholder, one Tao Naiqun.
In the letter, the investors cited a list of concerns including the 39.9% y-o-y drop in DRT’s group valuation from $1.13 billion as at the end of FY2021 to $679 million as at the end of FY2022. Other concerns include the lack of progress on the refinancing front with notices from Bank of China Singapore Branch, Bank of China Limited Zhongshan Branch and Malayan Bank Berhad Singapore Branch calling defaults under syndicated facilities.
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The minority investors are also “disturbed” by the announcements about the situation from the manager’s board, including the resignation of an independent director on Sept 11. The director in question was also the chairman of the remuneration committee and a member of the audit and risk committee and nomination committee of DRT’s manager.
“This leaves only three independent directors out of the six remaining directors, in breach of the statutory requirement for the majority of the board to be independent. DRTM announced that it would ‘endeavour to fill the vacancy within two months, but in any case, not later than three months’. Concerned investors note that to-date, no replacement independent director has been appointed,” say the investors via their statement.
Furthermore, a lead independent director of DRT, Tan Huay Lim, is facing a lawsuit brought by Zhang Zhencheng, whose family trust owns a major unitholding in DRT.
The suit alleges that Tan has failed to carry out his duties as an independent director amidst the refinancing exercise.
“Tan had allegedly pushed for a legally-binding MOU that would have required DRT to buy assets in China, on terms prejudicial to unitholders, at a time when the priority should have been the repayment and restructuring of the syndicated facilities,” say the investors.
“Against the backdrop of Sino-Ocean's financial woes and the concerns in relation to [the trustee-manager’s] board, the petitioning investors believe that internalisation would be crucial to preserve DRT’s asset value. There would be a complete alignment of interests between unitholders and an internal trustee-manager which is wholly owned by them. Unitholders will also have a say in the board composition of the internal trustee-manager, which can enhance corporate governance. Investors are hopeful that the absence of diverging interests would also make it easier to move forward with restructuring negotiations,” they add.
“Investors also believe that internalisation will bring about greater cost-efficiencies and reduction in management fees, trustee fees, acquisition and divestment fees otherwise payable to the external trustee-manager, which could eventually translate into higher distributions per unit (DPU) for unitholders.”
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Sino-Ocean could be rescued
According to Bloomberg, Chinese policymakers are finalising a draft list of 50 developers eligible for financial support that includes Country Garden Holdings Co and SIno-Ocean Group. Sino-Ocean Capital is a unit of Sino-Ocean Group. Increasing funding to troubled developers would ease panicked expectations of households, members of the standing committee of the National People’s Congress, said on November 22.
On the other hand, when news broke, bank shares suffered declines as pressure builds on the Chinese banks to “backstop” the economy.
As at 4.51pm, units in DRT are trading flat at 5.9 cents.
