Link Reit sounds out lenders on $4b borrowing

HSBC-led syndicate of banks has until Monday to submit proposals to trust

Link Reit, the world's largest real estate investment trust, is seeking a $4 billion loan as a first step in refinancing the $12.5 billion bridge loan arranged last year before its initial public offering, according to market sources.

The loan will be split into a $3.6 billion term loan of either three or five years and a $400 million revolving credit. The loan will not be secured by properties in the reit, a first for a property trust in Hong Kong.

'That'll make administrative and legal expenses lower and give the management more flexibility to sell assets,' a source said.

HSBC, an adviser to the trust, as well as Sumitomo Mitsui Banking Corp, DBS and Calyon Corporate and Investment Bank are expected to join the loan deal. Banks have until Monday to respond to the request for proposals from Link Reit.

A bond sale of up to $8.5 billion to refinance the remainder of the original loan was set to follow the loan, sources said. Goldman Sachs, another adviser to Link Reit, was tipped to arrange the bond sale.

Bankers said the loan could be enlarged and the bond sale would then end up smaller.

Link Reit had until March next year to refinance the bridge loan so a final structure was flexible, a source said.

The Link Reit management had earlier considered a commercial mortgage-backed securitisation, which would have offered investors a number of bonds with different yields based on risk.

In the end, it opted for a loan and bond mix that offered a single yield so it would have a lower funding cost, market sources said.

Commerical mortgage-backed securitisation can be pricier due to the large number of administrative costs.

Link Reit took out the original 16-month bridge loan in November last year and paid 4.85 per cent in interest, market sources said. The new loan was likely to come in a more expensive 55 or so basis points over the Hong Kong interbank offered rate due to the longer repayment period, they said.

Property trusts use debt to finance the acquisition of a greater number of assets than would otherwise be possible.

Link Reit pays dividends from rental income of car parks and retail space in the Housing Authority's public housing estates. The unit price has risen 31 per cent since its flotation last year and yields 4.1 per cent.