ARA Asset Management

[Boon]

I think the form is quite clear. If it was a market transaction it would have stated so.

Wonder why they did such expensive financing. Is it crucial for fund management company to have low gearing?

I think the question should be 'How can a fund Mgt company have high gearing'?

Fund Mgt companies have high ROEs, reflecting the asset/capital-light nature of their businesses. As such, there isn't too much collateral they can pledge to the bank to obtain loans.
You can imagine you are a banker and some guy who doesnt have hard assets like factory or land and wants to borrow $ from you, and it is not a bridging loan. You will think that guy is either mad or takes u for a patsy (or both).

Since their backers want them to get their feet wet as well, raising $ from shareholders is the most straightforward route.

Non-Current Financial Assets:
As at 30 September 2015 ARA has non-current financial assets of SGD 373.177 million comprised primarily of
(i)            94.3 million Suntec REIT units held by the Group as a strategic stake;
(ii)          16.5 million Cache units held by the Group as a strategic stake;
(iii)         36.2 million AmFIRST REIT units held by the Group as strategic stake;
(iv)         seed capital investments in the ADF I, the ADF II, the CIP, the MIP and the Harmony III;
(v)           a 10.02% strategic stake in ARA-NPS Real Estate Investment Company;
(vi)         seed capital investments in ARA ShinYoung Residential Development Real Estate Investment Company and
(vii)        investment in the APN SICAV-APN Asian Asset Income Fund previously known as ARA Asian Asset Income Fund). As at 30 September 2015, the liquidation of APN SICAV-APN Asian Asset Income Fund has been substantially completed, along with the receipt of the proportionate amount of liquidation proceeds by its investors.
 
Details of any collateral
As at 30 September 2015, the Group has pledged 34.1 million units of Suntec REIT and 16.5 million units of Cache as security for a S$50.0 million multicurrency revolving credit facility. The facility bears interest at a fixed spread over the corresponding benchmark rate of the available currencies and terminates on 15 March 2017.
 
Capacity for more Debt?
Capital assets that ARA owns are basically confined to financial assets in the form of “strategic stakes” in listed Reits and “seed capital” in the private funds.
 
Shares of listed Reits could be used as collateral for debt but not “seed capital” in private funds – ha-ha!
 
Most private funds are highly geared anyway – with assets at fund level being pledged as collateral.
 
SGD 60 million out of the total proceed from Right Issue would be used to repay STC shareholder loan - which was used to acquire strategic stakes in Suntec Reit.
 
No doubt, capacity for debt are limited – but it seems that 60.2 million units of Suntec Reit  (with market value of about SGD 90 million) are still available to be pledged as collateral for more loans. Based on a LTV ratio of 70%, this work out to be around SGD 63 million.
 
Capacity for Retaining more Earning to fund growth?
 
The other alternative to the equity raising route would be to retain more (if not all) future earnings (i.e. reduce dividend payout) for re-investment.
 
The amount required to maintain a DPS of 5 cents in cash is about SGD 50 million per annum, after the right issues.
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