A simmering battle between Singapore conglomerate Fraser & Neave and its bondholders related to the company’s plans to spin off its property division has drawn the attention of the city state’s central bank

MAS Casts Eyes on F&N’s Spat With Bondholders

By Kit Yin Boey on 4:53 pm November 11, 2013.
Singapore. A simmering battle between Singapore conglomerate Fraser & Neave and its bondholders related to the company’s plans to spin off its property division has drawn the attention of the city state’s central bank. The Monetary Authority of Singapore has approached bankers and investors to gather information on a consent solicitation that F&N launched last week.The discussions came after IFR reported that bondholders were unhappy with a consent solicitation process launched by F&N that will clear the way for the spin-off of Fraser Centrepoint, the group’s core property asset, and the early repayment of around S$808.25m ($652.7m) of outstanding Singapore dollar bonds.

F&N needs the approval from holders of six series of bonds as the spin-off will breach certain covenants of its debt. If bondholders fail to consent to the spin-off and the company proceeds with it, this would constitute an event of default and would allow creditors to demand immediate repayment of the bonds at par.

In addition, the company wants to include a call option by June 30 2014 in all the bond issues, indicating that it plans to redeem all the outstanding notes well ahead of maturity.

Investors are concerned that F&N will continue with the demerger, whether or not it gets all the votes, leading to a technical default. At least one investor has submitted a complaint to the MAS.

The spin-off plans follow the company’s acquisition by Thailand tycoon Charoen Sirivadhanabhakdi in a US$11.2bn takeover earlier this year.

The central bank’s interest underlines the significance of the case in Singapore, where events of default are extremely rare. Market participants fear that such an action from a blue-chip company with no cash-flow problems will have wider repercussions.

“If the MAS allows F&N to [get to an event of] default, despite its ability to pay up, then what will stop other issuers from adopting the same process?” said one investor. “That will undermine investor confidence.”

The standoff prompted F&N to hold a meeting with investors early last week, while a group of bondholders and lawyers discussed their options at a private meeting on Wednesday.

“It is not a question of credit, really, it is a question of credibility, and in turn, Singapore’s reputation and credibility,” said one banker.

Price is the issue

F&N believes the crux of the disagreement is over the price of the call, and not whether it will default, a company spokesman explained in an email.

The company spokesman said its proposal was fair and consistent, and adequately compensated bond investors, balancing the current market environment, future capital structure and interests of various stakeholders.

The company was “troubled that a group of sophisticated investors believe they can exert pressure on the MAS to intervene to fix prices between commercial parties…,” the spokesman said.

The spokesman, however, did not rule out the possibility of allowing a technical default.

“If F&N does not obtain the requisite consents, it will consider its options and make an announcement at the appropriate time,” he said.

The company clarified that the disagreement over the price of the call option is with only some noteholders.

Indeed, bondholders are expected to agree to F&N’s terms on the lower-coupon bonds, as the investors will not lose money on them. Bankers said at least four of the six bond series are likely to clear the process as the call option appears to be at a level equal or better than the current mark-to-market prices.

However, some investors may withhold their consent on the higher coupon-bearing notes, where F&N’s proposed compensation would spell a substantial mark-to-market loss.

The row will come to a head on Tuesday, when the final deadline for consent is due. A bondholder meeting that F&N arranged is scheduled for Thursday, while shareholders are due to vote on the demerger on Wednesday. The property assets account for over 60% of F&N’s profits.