Tuesday 25 April 2023

Dasin Retail Trust On Verge Of Collapse-The Can Of Worms Finally Got Revealed With Sponsor In Deep "Sheep"!

Wow....Dasin Retail Trust ("DRT") which has been keeping a low profile lately released not just one but three bombshells to investors on April 24, 2023. The gist of the announcements is that Zhongshan Dasin Real Estate Co.,Ltd , the Sponsor, of DRT is facing a myriad of law suits (a whopping 113 cases at least) of approximately S$338Mil against it since 2020. This piece of pertinent information I believed must have been well-known to the syndicated bankers hence their reluctance to re-finance the syndicated loans unless DRT reduces the quantum of the loan, as they need to cut down on their credit risk exposure. In addition, I reckon that the Sponsor has also been deliberately withholding this information from the Trustee-Manager of DRT in order to prevent a confidence crisis which will lead to a domino chain effect collapse that will eventually affect DRT adversely. There were also at least 9 existing equity freezes against the Sponsor's equity interests in some of its subsidiaries due to construction project contract disputes. The Sponsor of DRT is currently also listed on the "Blacklist of Defaulted Parties". This revelation is too drama and deserved to be filmed into a financial disaster movie to warn retail investors the danger of buying into Chinese companies.

1. With this can of worms officially open, how on earth is DRT going to get the syndicated lenders to re-finance its expired bank loans?
DRT tried to end this off optimistically by commenting that there is still no clear evidence that this can of worms, opened at this particular juncture, has any effect on the perception of its syndicated lenders.  

2. Valuation woes for DRT-S$652Mil of investment property valuation vaporised into thin air within 2 years?
In 2021, S$127Mil were written down. This got worst in 2022- there was a sudden sharp decline of -S$525Mil (-23%) in independent valuation of all its shopping malls portfolio as at December 31, 2022. This effectively means net equity of DRT dropped by an astounding -50%. One of the reasons was due to the cancellation of the Xiaolan Master Lease and E-Colour Master Lease due to related company default of rental payment. Other factors like negative rental reversion as well as higher vacancy rates led to the severe plunge in valuation of its investment properties.

The key question is this, even with an adjustment of -23% to fair valuation, is anyone certain that the remaining valuation can be trusted? Is it really worth this amount or actually another 50%-60% write down needs to be buffered in especially if the bankers exercised their rights and ask for a creditor liquidation of all assets at firesales prices. As with all fire-sales like what happened to Eagle Hospitality Trust, the bankers will get most of the proceeds with very little left-over (or none at all) for DRT unitholders and other creditors.

3. Other woes
One of DRT major anchor tenants, Carrefour China, has gone for early termination of its 20 years lease from December 28, 2014 of 191,000sqft at Ocean Metro Mall. Ever since the 2nd half of 2021, Carrefour China has not paid the rent of S$1.4Mil as at 31 March 2023. This is also complicated by a counter-claim by Carrefour China against DRT of S$1.43Mil for reimbursement of renovation costs.

This begs the question of can we even trust the financials of DRT and that there are no more defaulters?

Summary thoughts
Originally in Sep 2021, I was thinking that there is a high return potential from taking calculated risk into DRT as investors have been punishing it unduly and its unit price will eventually bounce back to at least S$0.70-S$0.80 per unit. I can only heave a sigh of relief that I have long exited my various small bite-size foray into DRT in 2022 after the many continuous red-flag signals. Personally, I think that this is a real classic case of catching a falling knife along with many major surprises hidden by its management and Sponsor. DRT is in a race to the bottom and there is the possibility that one can end up in a death spiral quickly with DRT. 

No comments:

Post a Comment