GLP Perpetual Looks Attractive from Punitive Step-up

15 April 2016

Credit and RV Idea

           

GLP Perpetual Looks Attractive from Punitive Step-up

Highlights/Updates:

·         GLP announced the completion of 65.66% sale in Industrial Income Trust (IIT) for USD1.3bn. The sale is expected to reduce the company’s net debt/EBITDA to 7.2x, from 9.5x as of Dec-15. 

·         GLP’s stake in IIT will be reduced to 34.33% post-transaction and will be consolidated as associate and assets held for sale, which will result to improvement in leverage.

·         GLP is negotiating to sell another 24% stake in IIT for USD400-500m, while keeping the remaining 10% in the portfolio.  

·         Nonetheless, the negative outlook to stay, underpinned by management’s acquisition strategy which increased GLP’s financial risk.

Bond Details:

Bond	Global Logistics Properties, GLPSP 5.5% Pc17 (Price: 102.25 ; YTC: 3.121% : SOR+164bps)
Amount Outstanding	SGD750m
ISIN	XS0713845195
Ratings	Baa2 (Senior) /--/BBB- (Perps)

Relative Value Commentary:

We like GLPSP 5.5% Pc17 is at 3.121% of the SGD compared to the USD GLPSP 3.875% 6/25 which was last seen at 3.79%/3.72% or c.T+203/197. We see strong likelihood of call on the perpetual given the punitive coupon reset of 5y SDSW (now at 1.89%) +420bps and 100bps step-up, which result to new coupon of 7.09%, if not called. Investors may consider holding the perpetual note based on this ground. Nevertheless, we share the same opinion as Moody’s on the rating and outlook at this juncture, but would prefer the outlook to be revised to stable if the company continues to proof efforts to de-gear. As of December 2015, GLP’s cash stood at USD1.136bn, more than enough to offset its obligation for the next 12 months of USD954m. With proceeds coming from the disposal, the Company’s liquidity profile is set to improve further.