Dasin
Retail Trust (“Dasin”) is in financial crisis. SGX has raised queries regarding
its weak balance sheet with cash on hand and other short term assets being unable
to fulfill its current liabilities. Apparently, a huge sum of loan financed by
local and offshore bankers had expired and granted only a temporary extension till 19 December 2021. The local China banker lender had withdrawn itself for new facilities and this left the offshore bankers shell-shocked
and being placed on guard that there may be fundamental weaknesses or other
“surprises” waiting to spring on them in Dasin. Not surprisingly, Dasin’s unit
prices has thus plummeted from S$0.785 per unit as of beginning of the year to
the current S$0.415 per unit (as at 17 September 2021) which is a whopping 47%
plunge in valuation.
1.Quick financial recap for Dasin
As at 30 June 2021, Dasin’s net asset value is S$1.46 per unit. DPU for the 1st half of 2021 is 2.98 cents which gives an astounding annualized yield of +14.36% at the latest closing price of S$0.415 per unit as at 17 September 2021. Take note that there is also income support for Dasin which will no longer be available from FY2022. The normalized 1st half DPU (if we were to add back the distribution waiver to some units due to this) will be 2.67 cents which still gives a dazzling annualized yield of +12.9%. The higher distribution relative to FY2020 is mainly due to recovery from covid-19 impact as well as contribution from Shunde Metro Mall and Tanbei Metro mall which were acquired in July 2020.
Before one rejoice, we need to delve into deeper discussion on the key going concern risk from the impact of Dasin’s maturing huge debt of S$500Mil that may result in a forced liquidation.
Dasin has S$422.7Mil of offshore debts and S$79.2Mil of onshore local debt that matured in July 2021-approximately S$500Mil.The bankers have extended these to 19th December 2021. Classification of these are thus “short term” which resulted in a current ratio (current assets/current liabilities) of less than 1. Since Dasin clearly does not have enough funds to repay all the loans, this will mean a default of loans and an immediate lawsuits from the lawyers representing the bankers which can lead to a forced liquidation and an unfavorable fire-sales of all shopping malls at a very low price. Unit-holders will also face suspension of trading of their units and get their liquidity stuck for 1-3 years (at least 1 year) under such adverse turn of event.
2. Bankers spooked by Dasin. A
repeat of the Eagle Hospitality Trust Saga?
Most of the investors of Dasin are extremely worried about the reason why the consortium of banks renewed the term loans for Dasin until only 19 December 2021 and did not extend them for 3 to 5 years as per the normal practices with other REITs. There were also market talks that a local China bank pull out of the syndicated loan earlier this year which spooked the hell out of the remaining bankers.
It was also reported that the bankers were so filled with anxiety that they resorted to sending out personnel and officials to visit Dasin’s malls. Good news here is that the shopping malls under its portfolio seems to be packed and doing extremely well.
Hence it does not seemed to be another case of Eagle Hospitality Trust saga where the sponsor did a lot of magic tricks to move the money around out of cleverly engineered financial valuation of assets which resulted in many current lawsuits being filed. Dasin has also been paying out distributions for the past few years unlike Eagle Hospitality Trust which failed to even deliver its first distribution.
3. Other points to note- Sponsor Mr Zhang Zhencheng seems to have financial difficulties.
One interesting point to note is that Mr Zhang Zhencheng and his investment vehicle Aqua Wealth have pledged 38 Mil Dasin’s units as collateral for margin facilities with CGS-CIMB for purpose of securities trading. He has been forced by the broker to liquidate some of his Dasin’s holdings due to margin call. The fact that Mr Zhang Zhencheng did not top up additional cash to his margin account suggests that he has encountered some financial distress personally.
While it is true that Dasin and Mr Zhang’s Aqua Wealth are different legal entities, the implication here, in terms of corporate control environment, is that it leads to higher risk or pressure of possible financial misstatement in order to ensure the financials of Dasin looks well. Investors have this lingering doubt that things are not as rosy as reported for the 1st half results and there are cans of worms that may surface soon. Many failed business such as Eagle Hospitality Trust reported unrecorded liabilities only when special accountants were appointed to scrub through their books.
In addition, once we add in exorbitant default interest rates on bank loans as well as professional service firms such as liquidator and lawyers, a huge chunk of the net assets will be burnt up quickly to feed these hungry sharks which may result in little or none being left for the unit-holders.
4. Light at the end of the tunnel?
The good news here is that Mr Zhang Zhencheng is a smart man. He has pulled in a HKE listed investment holding company Sino-Ocean Capital (specializes in property investment and development activities in China) to take up a 70% stake in Dasin’s Manager. It has also granted an option to Sino-Ocean Capital to buy up to 26% of the units owned by Aqua Wealth. Sino-Ocean already held on to 6.36% of Dasin which will make it one of the biggest holder of up to 32.36% if the option is exercised.
Sino-Ocean is a state owned enterprise in China which thus placed it in an entirely different league with other S-chips listed on SGX (which were beset by corporate governance and accounting problems).
It was reported that the entry of Sino-Ocean was instrumental in the bankers agreeing to extend the original loan facilities maturing 18 July 2021 to 19 December 2021. The new Trust Manager is working with the bankers to secure a longer term syndicated loan. Anyway, 3 months left for negotiation with bankers and we will know the fate of Dasin soon.
Parting Thoughts
So the key question at the end of the day is whether Dasin will survive this loan crisis. Phillip Securities, in July 2021, has issued a price target of S$0.780 per unit for Dasin which is an 88% potential upside. Personally, I think that this is a very risky time to enter into Dasin unless there are more information being released. Sino-Ocean Capital also has not exercised their option to acquire more units in Dasin hence they may still be doing their own due diligence and are uncertain. Henceforth, there may still be bigger surprises that are unrevealed yet.
As at 30 June 2021, Dasin’s net asset value is S$1.46 per unit. DPU for the 1st half of 2021 is 2.98 cents which gives an astounding annualized yield of +14.36% at the latest closing price of S$0.415 per unit as at 17 September 2021. Take note that there is also income support for Dasin which will no longer be available from FY2022. The normalized 1st half DPU (if we were to add back the distribution waiver to some units due to this) will be 2.67 cents which still gives a dazzling annualized yield of +12.9%. The higher distribution relative to FY2020 is mainly due to recovery from covid-19 impact as well as contribution from Shunde Metro Mall and Tanbei Metro mall which were acquired in July 2020.
Before one rejoice, we need to delve into deeper discussion on the key going concern risk from the impact of Dasin’s maturing huge debt of S$500Mil that may result in a forced liquidation.
Dasin has S$422.7Mil of offshore debts and S$79.2Mil of onshore local debt that matured in July 2021-approximately S$500Mil.The bankers have extended these to 19th December 2021. Classification of these are thus “short term” which resulted in a current ratio (current assets/current liabilities) of less than 1. Since Dasin clearly does not have enough funds to repay all the loans, this will mean a default of loans and an immediate lawsuits from the lawyers representing the bankers which can lead to a forced liquidation and an unfavorable fire-sales of all shopping malls at a very low price. Unit-holders will also face suspension of trading of their units and get their liquidity stuck for 1-3 years (at least 1 year) under such adverse turn of event.
Most of the investors of Dasin are extremely worried about the reason why the consortium of banks renewed the term loans for Dasin until only 19 December 2021 and did not extend them for 3 to 5 years as per the normal practices with other REITs. There were also market talks that a local China bank pull out of the syndicated loan earlier this year which spooked the hell out of the remaining bankers.
It was also reported that the bankers were so filled with anxiety that they resorted to sending out personnel and officials to visit Dasin’s malls. Good news here is that the shopping malls under its portfolio seems to be packed and doing extremely well.
Hence it does not seemed to be another case of Eagle Hospitality Trust saga where the sponsor did a lot of magic tricks to move the money around out of cleverly engineered financial valuation of assets which resulted in many current lawsuits being filed. Dasin has also been paying out distributions for the past few years unlike Eagle Hospitality Trust which failed to even deliver its first distribution.
3. Other points to note- Sponsor Mr Zhang Zhencheng seems to have financial difficulties.
One interesting point to note is that Mr Zhang Zhencheng and his investment vehicle Aqua Wealth have pledged 38 Mil Dasin’s units as collateral for margin facilities with CGS-CIMB for purpose of securities trading. He has been forced by the broker to liquidate some of his Dasin’s holdings due to margin call. The fact that Mr Zhang Zhencheng did not top up additional cash to his margin account suggests that he has encountered some financial distress personally.
While it is true that Dasin and Mr Zhang’s Aqua Wealth are different legal entities, the implication here, in terms of corporate control environment, is that it leads to higher risk or pressure of possible financial misstatement in order to ensure the financials of Dasin looks well. Investors have this lingering doubt that things are not as rosy as reported for the 1st half results and there are cans of worms that may surface soon. Many failed business such as Eagle Hospitality Trust reported unrecorded liabilities only when special accountants were appointed to scrub through their books.
In addition, once we add in exorbitant default interest rates on bank loans as well as professional service firms such as liquidator and lawyers, a huge chunk of the net assets will be burnt up quickly to feed these hungry sharks which may result in little or none being left for the unit-holders.
The good news here is that Mr Zhang Zhencheng is a smart man. He has pulled in a HKE listed investment holding company Sino-Ocean Capital (specializes in property investment and development activities in China) to take up a 70% stake in Dasin’s Manager. It has also granted an option to Sino-Ocean Capital to buy up to 26% of the units owned by Aqua Wealth. Sino-Ocean already held on to 6.36% of Dasin which will make it one of the biggest holder of up to 32.36% if the option is exercised.
Sino-Ocean is a state owned enterprise in China which thus placed it in an entirely different league with other S-chips listed on SGX (which were beset by corporate governance and accounting problems).
It was reported that the entry of Sino-Ocean was instrumental in the bankers agreeing to extend the original loan facilities maturing 18 July 2021 to 19 December 2021. The new Trust Manager is working with the bankers to secure a longer term syndicated loan. Anyway, 3 months left for negotiation with bankers and we will know the fate of Dasin soon.
So the key question at the end of the day is whether Dasin will survive this loan crisis. Phillip Securities, in July 2021, has issued a price target of S$0.780 per unit for Dasin which is an 88% potential upside. Personally, I think that this is a very risky time to enter into Dasin unless there are more information being released. Sino-Ocean Capital also has not exercised their option to acquire more units in Dasin hence they may still be doing their own due diligence and are uncertain. Henceforth, there may still be bigger surprises that are unrevealed yet.
