Published October 24, 2008

GIC RE to up stake in troubled Australian property group

Up to A$700m extra investment will boost 2.2% shareholding in GPT Group

By ARTHUR SIM

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(SINGAPORE) The Government of Singapore Investment Corporation (GIC), through its real estate arm, will invest up to A$700 million (S$705 million) in Australian property trust GPT Group.

While GPT Group is one of Australia's largest and most established diversified listed property groups, it has been been hit hard by the current global financial crisis due to foreign currency exposure and the recent decline of the Australian dollar.

Reuters earlier reported that the group had been trying to sell almost a third of its A$14 billion in assets. It added that GPT Group struggled to sell off its Voyages Lodges chain of eco resorts and its US seniors housing business to shore up its balance sheet.

In a statement released yesterday, GIC Real Estate president Seek Ngee Huat said: 'We have always believed in the fundamentals of the Australian economy and its property sector. We see this partnership with GPT as a good fit, and an important part of our investment strategy in Australia.'

GIC RE already has a 2.2 per cent shareholding in GPT Group.

GPT Group, which has seen its share price fall over 70 per cent this year, also released a statement yesterday saying that it is making an entitlement offer to raise a minimum of A$1.3 billion.

It added that GIC RE would take up its pro rata entitlement as well as be issued with A$250 million in perpetual, exchangeable securities.

GIC RE also agreed to sub-underwrite 504 million securities of the retail entitlement offer. GPT Group will place additional securities to GIC RE such that GIC RE receives a minimum of 250 million securities through its sub-underwriting of the retail entitlement offer.

In all, GIC RE is expected to invest between A$450 million and A$700 million in GPT Group and have a shareholding of between 12 and 18 per cent.

GPT Group has said that the net proceeds from the entitlement offer will be used to repay debts and deleverage its balance sheet, with its business plan and debt maturities fully funded through January 2010.

The Sydney Morning Herald also reported yesterday that shareholders of the company were intending to launch a class action suit, alleging that GPT Group's board provided misleading and deceptive earnings guidance - centring around statements made by GPT Group in July, when it released a statement to the Australian Stock Exchange, in which its forecast earnings for the 2008 calendar year were cut by 27 per cent.

Asked if GIC RE was concerned that GPT Group will require more recapitalisation, a spokeswoman for GIC RE said: 'We believe that GPT has made a realistic assessment and its move for a recapitalisation will be able to strengthen its balance sheet.'

She added: 'Moreover, our structure of convertible perpetual preferred securities and rights issue participation will provide sufficient downside protection and opportunities for upside in capital appreciation. There is also a reset provision should there be further dilution.'