Terminated hotel deal a setback for Oxley's deleveraging plans

Singapore

AGGRESSIVELY geared Oxley Holdings will find it harder to keep to its stated deleveraging schedule after a planned S$950 million sale of two Stevens Road hotels fell through.

The property developer's shares slid 3 per cent, or one cent, to close at S$0.32 on Wednesday, reversing in one fell swoop the gains that the stock had achieved from last week's news of a separate deal that US real estate fund AEW had made an expression of interest (EOI) to acquire Oxley's Chevron House for S$1.025 billion.

Oxley announced late on Tuesday that it had "with immediate effect" terminated a letter of intent (LOI) signed in January to sell its Mercure and Novotel Hotels to privately held Gracious Land.

BT understands that Gracious Land is owned by Indonesian tycoon Tahir, who goes by one name, and is the founder of Mayapada Group. Mayapada is a conglomerate with interests in banking, a hospital chain and real estate.

Oxley said that among other things, Gracious Land had failed to meet a Feb 28 deadline to pay a deposit of S$38 million, being 4 per cent of the total consideration.

Oxley said it therefore notified Gracious Land of the termination of the LOI.

The buyer has also requested a refund of an initial S$9.5 million deposit it had paid to Oxley. The Singapore property group, however, has said it does not have to repay that amount, setting up both sides for a possible dispute.

Why Gracious Land did not keep to the payment schedule is anyone's guess.

Asked to explain why the deal fell through, a spokesman representing Oxley said the group cannot reveal details owing to a non-disclosure agreement.

It has however said it will continue to explore opportunities and will inform shareholders of any updates in due course.

As for Chevron House, the buyer is currently doing its due diligence. AEW has been granted an exclusive dealing period of 45 days starting from the day after the acceptance of the EOI; this may be extended for a further seven days at the buyer's request.

An industry source told The Business Times that several property agencies have approached Oxley to help to sell the two hotels, and that the company is in the middle of considering this.

The collapsed deal is a setback for Oxley's plans to strengthen its balance sheet.

The company said in February that its gearing will improve from 2.55 times as at end-December 2018 to about two times upon the completion of sale of the two hotels. Most developers try to keep to a gearing limit of one at most.

Oxley was hoping to bring its debt level down to equal its equity value by the end of the year, executive chairman and chief executive Ching Chiat Kwong told BT in an interview published earlier this month.

In an interview published in BT earlier this month, Mr Ching had said Oxley ultimately aims to reduce its gearing to 1 time debt-to-equity by the end of the year. The company has said it plans to pay off S$1.6 billion of debt due in the next three years through the sale of completed projects and through asset disposals.

Oxley's spokesman said the company will continue with its deleveraging plan by disposing of assets when the opportunity arises.

DBS Group Research analyst Rachel Tan cautioned against being too optimistic about deals that have not been sealed.

The LOI for the two hotels and the EOI for Chevron House are all non-binding, and there was no certainty from the start that the sales would be completed, she said.

"If this deal (the hotel sale) had gone through, it would help to alleviate some of the cash needs that Oxley has... If both assets were sold, it would be even better. If both don't get sold, it would be back to square one, and the group's debt repayment risks would still remain," she said.

The most pressing debt issue for Oxley at the moment comes from its S$450 million of retail bonds maturing in November 2019 and May 2020, she said.

Having said that, "the company has said it is ensuring that it can pay off the retail bonds that are expiring, and also has some cash coming back from its overseas projects in the United Kingdom and Dublin," Ms Tan added.

At the very least, the company appears to be trying to relieve the pressure on its balance sheet.

"Their gearing is high, so there is always this risk, but they are doing something about it, evident from their efforts to get buyers to acquire their assets to ensure that they can pay back their debt," Ms Tan said.