Sino Land Co is considering securitising the rental income of a major investment property project to raise HK$1 billion to finance the company's expansion. The fund-raising exercise has been described by analysts as an innovative and efficient way to generate capital and a good example for other developers to follow. Executive director Michael Cheng Chaun-kwan said yesterday Sino Land was considering arranging $1 billion loan financing through the securitisation of an investment property. He did not identify the property in question but said the deal would not be finalised until late this year. Sino Land has a number of investment properties. Its 10 per cent interest in the 1.4 million sq ft Central Plaza in Wan Chai, the territory's tallest building, is seen as one of its most valuable properties. Analysts said securitisation would turn the property's rental income receivables into marketable securities which would be sold to institutional investors who would then receive interest for the paper. Mr Cheng said the instrument was introduced to Hong Kong and first used by Eton Properties, which raised US$122 million using the method last year. Analysts said securitisation was a new way of refinancing and provided the company with a cheaper funding channel. Mr Cheng said the proposed issue would be set at 100 basis points above the London interbank offered rate (Libor). DBS Securities property analyst Winnie Chiu said this was lower than the conventional bank borrowings cost at Sino Land of 170 to 200 points above the Hong Kong interbank offered rate (Hibor). She said taking into account Sino Land's total liability, banks could usually charge it a borrowing rate higher than that for other developers. It is said that Sun Hung Kai Properties was charged by banks at 100 basis points above Hibor. Ms Chiu said the net gearing of Sino land was about 17 per cent, excluding the borrowings for its associated projects, so total gearing should be higher than that level. Credit Lyonnais Securities Asia property analyst Trevor Cheung said the move indicated Sino Land's need for capital to fund its new projects. He said the fund-raising method was not commonly used by other major developers because they had no difficulty in arranging low-cost funding from banks. He expected the proceeds of the proposed fund-raising issue would be used to finance the Package Two property development above the airport railway's Tai Kok Tsui station in which Sino Land had a 42.5 per cent interest. Partners in its joint-venture development include Kerry Properties, Bank of China Group and China Overseas Land & Investment. Mr Cheng said the consortium was planning to change the project design to give all residential units in the development a better view. He said the number of residential towers in the Package Two development would be fewer than the originally planned 19. FUND-RAISING INSTRUMENT Rental income would be used to back securities Analysts describe method as innovative Securitisation introduced by Eton Properties
