City Development Limited Gets Creative With Latest Fund Raising Exercise

City Development Limited (SGX: C09), one of the largest property developers in Singapore, has announced that it will be raising an additional S$1.5 billion for its integrated development in Sentosa. However, the method for raising the funds is different from what most would expect.

City Development is planning to raise funds through a “Profit Participating Security” (PPS) to selected investors to develop its Sentosa Cove properties. The integrated development will include the W Singapore Hotel, the Quayside Isle (waterfront retail property) and The Residences at W Singapore. Investors that have signed up for the investment are Blackstone’ Tactical Opportunities Fund and CIMB Bank Berhad. The PPS program will raise a total of S$750 million and DBS Bank Ltd, a subsidiary of DBS Group Holdings Ltd (SGX: D05), and Oversea-Chinese Banking Corp. Limited (SGX: O39) will provide the additional S$750 million as senior loan facilities.

Investors in the PPS are entitled to a 5% interest per year plus a participation in the cash flows generated by the above properties as long as they hold on to the investment.

What Does This Mean For Investors?

It seems the fund raising exercise highlights two points for investors in City Development Limited. Firstly, they do not have to worry about share dilution as the PPS is a separate form of securities from their rights as a shareholder. Secondly, the PPS is only backed by the properties in Sentosa Cove so the company will not be greatly affected even if the Sentosa Cove project fails in the future.

That being said, it can also be observed that fund raising is no longer as easy as before, resulting in the management needing to find new and creative ways to fund its projects. The effective interest on the investment is also quite high at “5% + Cash Flow”. According to the company’s annual report, its past bank loans and outstanding bonds only holds an interest rate not more than 4%. And the dividend yield for its shareholders is only around 3.3% currently. The deal seems to be more advantageous for the investors of PPS.

Foolish Summary

With the slowdown in the property market across the region, maybe any growth opportunity for the company is better  than no opportunity. As long as the company can weather through the storm, the future might be brighter for everyone.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above