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Updates on troubled Chinese S-REITs

The Edge Singapore
The Edge Singapore  • 3 min read
Updates on troubled Chinese S-REITs
Xiaolan Metro Mall
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Late on September 4, Dasin Retail Trust’s trustee-manager (manager) announced that the Bank of China’s Zhongshan Branch declared an event of default had occurred for an onshore loan of RMB400 million. The Onshore facility in question, Onshore Facility 1 had matured on December 31, 2022 and there is an outstanding sum of RMB355.2 million as at August 31.

“On the instructions of all the Lenders, the Onshore Obligors are to urge Zhongshan Yuanxin to repay the outstanding sums due under the Onshore Facility 1 within 5 days of receipt of the Notices. At the same time, Bank of China, Zhongshan Branch may take steps in its capacity as Facility Agent and Security Agent of Onshore Facility 1 to enforce the Securities provided by the Onshore Facility 1 Subsidiaries under the Security Documents,” the September 4 statement issued by Dasin Retail Trust’s manager says.

Dasin Retail Trust also has an Offshore Facility 1 of $430 million. The September 4 announcement says Dasin’s Offshore Facility 1 and Onshore Facility 1 financed the acquisitions of the initial portfolio of the trust comprising Xiaolan Metro Mall, Ocean Metro Mall, Dasin E-Colour and Shiqi Metro Mall.

As explained previously, the Onshore Facilities are secured, and Offshore Facilities are usually unsecured. So banks with onshore subsidiaries or branches have inter-creditor agreements (ICA) with their offshore subsidiaries or branches. ICAs are important because offshore creditors do not have recourse or access to the assets in China. The other difference is that onshore loans tend to be amortising while offshore loans tend to be bullet loans.

The September 4 announcement says that Dasin's manager continues to explore the available options in relation to the restructuring exercise with the Lenders under the various facilities.

On September 4, that other troubled Chinese S-REIT, EC Word REIT (ECW) announced the facility agent under the Offshore Facilities released $3.4 million of the Offshore Interest Reserve to repay some offshore interest expenses due on August 31 which staved off default.

See also: CapitaLand Ascott Trust completes divestment of four properties in France for EUR44.4 mil

“The Offshore Interest Reserve must be topped up by the ECW Group (comprising ECW and its subsidiaries) within five business days of its release. The breach of this requirement would, if not remedied within the agreed cure period, result in an event of default pursuant to the Offshore Facilities and also triggers a cross-default under the Onshore Facilities,” the ECW manager’s announcement says.

In a circular in November 2022, the directors of ECW's manager said they held the view the sponsor of ECW had sufficient financial resources to meet its offshore and onshore obligations based on the sponsor's latest audited financial statement.

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