Published June 24, 2009

Starhill falls after unveiling rights issue plan

Moody's affirms its ratings of the Reit, says the outlook for the ratings is stable

By UMA SHANKARI

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STARHILL Global Reit yesterday fell 3.9 per cent - amid a broad market pullback - a day after the property trust said it will tap the market through a $337.3 million rights issue.

Meanwhile, Moody's Investor Services affirmed its 'Baa2' corporate family and 'Baa3' unsecured debt ratings of Starhill Global Reit - which owns stakes in Wisma Atria and Ngee Ann City in Singapore.

Moody's added that the outlook for the ratings is stable.

The Reit, which is partly owned by Malaysia's YTL Corp, lost 2.5 cents to close at 61.5 cents. The trust on Monday announced plans to sell new units to raise $337.3 million to reduce debt and get new funds for possible acquisitions.

The Reit does not have any refinancing requirements in 2009, although the bulk of its $670.1 million of borrowings are due in 2010.

The rights issue will improve Starhill Global Reit's balance sheet, said Franklin Heng, chief executive of the trust's manager. On Monday, the trust also announced a 7.1 per cent write-down in the value of its property portfolio to $1.95 billion as at June 15, 2009 from $2.1 billion at end-2008.

That would have pushed up its gearing from 31.1 per cent to 33.4 per cent. But with the rights issue and the repayment of some debt, gearing will instead be reduced to 20.7 per cent.

The capital raising should provide the Reit with adequate buffer against further asset write-downs, Moody's said.

'If (the rights issue is) completed and used to reduce debts by 35 per cent to $434.3 million, the capital raising would materially enhance Starhill's credit metrics,' said Moody's senior analyst Kathleen Lee.

However, while the initiative will have a positive effect on Starhill's credit metrics once completed, Moody's is concerned that further weakening in the operating environment could translate into slower demand for rental space and result in further asset write-downs. This could be exacerbated by the strong supply of new retail space coming on-stream within the Orchard Road precinct between Q3 2009 and 2012, Ms Lee added.