AllCo -> Frasers

The sale of Allco Fianance's stakes in Allco and the Trust mgmt co. to Frasers was completed on 14-Aug-08 as per their SGX Annc. So, what can we expect fm now?

Some background,

Allco
- Gearing high at 44%
- Allco Finance facing severe credit crunch
- Moody's downgraded Allco
- Allco planned to sell Aussie assets to reduce gearing and focus on Asia

Frasers
- Initially planned to hv own REIT for their Office assets
- Decided to takeover Allco and inject their assets into Allco at a later date

I see 3 possible scenarios fm now,

1) Continue with AllCo's Plan
- Sell off Aussie assets as Frasers may not hv the experience in Aussie mkt
- Money raised will be used to purchase assets fm Frasers

2) Issue New Shares as Payment for Frasers' Assets
- Frasers hv only 18%+ stake in Allco and may be willing to increase that (they hv 51% stake in FCT)

3) Equity Fund Raising at Discount
- Will subscribe for all excess (same as Mapletree and PST)
- Good for Frasers as they get to increase their stake in Allco at a discount
- Funds raised to be used to purchase Frasers' assets

IMO, (3) would be the worst case scenario (for shareholders) as it'd cause the share price to likely free fall to the New Shares discount level (same as Mapletree which dropped 20%) altho' it could be lower if they give a smaller discount (PST offered at 5%).

In all 3 scenarios, the yield will very likely drop as current yield of 9.6% @ $0.715 is already high and yield accretion is only possible if they fund any acquisition via debts.


Other Comments

Positives
- With Frasers, a lot of uncertainties have been removed
- Moodys will likely revise their ratings positively
- Refinancing of their debts will now be easier and they should be able to get competitive rates
- Best yielding Office REIT (KREIT, CCT aro' 6%)
- With Mr Lee Hsien Yang in F&N, shareholders ought to be better respected

Negatives
- Funds still need to be raised for their intended acquisitions from Frasers
- At last count, 6 other REITs are offering better yields


To be continued if I can think of anything else .....