Singapore’s biggest IPO of 2014 so far is also Asia’s first listing of golf course assets, as well as a sign of growing ties between Japan and South-East Asia.
Teeing off first
Source: REUTERS/Toru Hanai
Accordia Golf Trust raised S$759m (US$600m) from Asia’s first golf business trust IPO in July, in the process overcoming doubts over the profitability of the Japanese golfing sector.
With Singapore’s deeper business trust market, in terms of investors and listings, it came as no surprise that Accordia chose the city state over Hong Kong for the listing. The IPO also remains Singapore’s largest for 2014.
Goldman Sachs set up Accordia, Japan’s largest golf course operator, in 2003 to manage the close-to-bankruptcy and financially weak courses it acquired in the 1990s. In 2011, Goldman Sachs sold its 44.73% stake in Accordia through an offering of secondary shares.
Accordia formed the business trust as part of an “asset-light strategy”. While the assets will be transferred to the business trust, the company will keep receiving management and trustee fees.
CEO Yoshihiko Machida said Accordia did not want to spin off the assets through the Japan real estate investment trust (J-REIT) structure because, under the related rules, the company required the permission of all landowners where the assets were located.
However, under the business trust structure, this requirement is not there.
“We were willing to pay the premium of a business trust because of the convenience of the structure and also because Accordia needs to be asset-light,” Machida said.
Spinning off the assets into a business trust also allows Accordia to benefit from lower taxes. Full ownership of the assets will result in a Japanese corporate tax rate of 37.1%. Instead, economic ownership through a special-purpose vehicle, known in Japan as a “tokumai kumiai” structure, reduces it to a 20.4% withholding tax on distributions.
Typically, the yield on J-REITs is 3.5%–4.5%, while that on business trusts in Singapore is between 6% and 9%. Croesus Retail Trust was the last Japanese company to embark on a Singapore business trust IPO in May 2013. The S$365m IPO was priced to yield 8%.
Marketing of the Accordia IPO started in May, and the targeted investors were those in Asia and Europe.
“At the marketing stage, our greatest challenge was to clear the investor misunderstanding that the golf business is not profitable in Japan. All our golf courses are profitable.” Machida said, while pointing out that all of Accordia’s golf courses are in Tier 1 cities.
“Another challenge was that, with Accordia being a listed company, we couldn’t make many disclosures to the global investors, who weren’t fully aware about the sector,” Machida said.
“At the marketing stage, our greatest challenge was to clear the investor misunderstanding that the golf business is not profitable in Japan. All our golf courses are profitable. Another challenge was that, with Accordia being a listed company, we couldn’t make many disclosures to the global investors, who weren’t fully aware about the sector.”
As a result, Accordia sold nearly 90% of the units made available to Japanese investors under the public offering without listing (POWL) scheme. This is much higher than the 10% typically allocated to Japanese investors in Asian POWLs.
The trust sold 782m shares at the bottom of the S$0.97–$1.00 range, implying a 2015 yield of 6.8%–7.0%. The IPO comprised an institutional portion of 164.6m shares, a Singapore retail portion of 41.1m and around 576.2m shares for Japanese investors.
As the response from Japanese investors was stronger than anticipated, the tranches were reallocated and they were allocated 705m shares, while Singapore investors were assigned 28.8m shares as the tranche was 0.7 times subscribed. The rest of the shares were sold to institutions. Around 40 investors participated in the institutional tranche, equally divided among Asian, European and offshore accounts.
Accordia’s fixed yield of 7.0% is on par with 7.0% and 6.8% respective figures on the IPOs of Frasers Hospitality Trust and OUE Commercial Trust this year. Both these companies are well known in Singapore and their assets are largely located in Singapore.
Traditionally business trusts with assets outside Singapore have to pay a much higher yield. For example, Taiwan’s Asian Pay Television Trust sold its Singapore IPO at an 8.5% yield last year and India’s Religare Health Trust at an 8.95% yield in 2012 at a time when the global interest-rate outlook was still benign.
Machida said the stable outlook for Japan and the low risk premium helped the company achieve the relatively low yield relative to other Asian peers.
Although Accordia’s shares weakened after listing on investor concerns over rising base rates and the quality of its assets, Machida said the company was continuing with its investor-education programme to highlight that it had ample growth opportunities in Japan.
Accordia Golf Trust has 89 golf courses with 5.6m annual visitors. The trust plans to increase its assets under management to ¥210bn (US$1.9bn) in FY 2016–17 from ¥160bn now, Machida said.
The company’s successful IPO in Singapore is expected to lead to similar business trust IPOs from Japanese entities in the leisure and amusement park sectors.
Daiwa and Citigroup were the joint global co-ordinators and bookrunners.
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