Frasers Commercial Trust

Frasers Commercial Trust: DMG notes that the Group recently announced that it had successfully redeemed 157.1m units, c.45.9% of the total Convertible Perpetual Preferred Units (CPPU) originally issued. After the redemption in early Apr 2013, only 14.3m units - which translate into 4.2% of the original number of CPPUs issued - will remain outstanding. House states that the CPPUs are costing FCOT an average 5.5% annually at the DPU level, and assuming that 80% of this exercise is funded by debt at an average annual interest rate of 3.3% while the rest is paid for in cash, the entire exercise is expected to drive DPU by 6.8% and 13.9% in FY13 and FY14 respectively. However, assuming 80% of the latest redemption exercise is funded through debts, DMG would expect the company’s gearing to rise to 38% on completion of the exercise next month, from the current 31.7%. The company’s success in redeeming the CPPUs will remove the overhang arising from possible share dilution in the event the CPPUs are redeemed.