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More costs likely as Sabana's manager agrees to Quarz's EGM, observers say

Goola Warden
Goola Warden • 2 min read
More costs likely as Sabana's manager agrees to Quarz's EGM, observers say
Sabana REIT likely to incur further costs for third EGM requisitioned by Quarz as price hits post-Covid low
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Market observers are suggesting that Sabana Industrial REIT may have to incurr further costs. Quarz Capital Asia and the so-called Sabana Growth Internalisation Committee or SGIC which comprises mainly of Quarz Capital itself, requisitioned an EGM earlier in the year which was postponed. Subsequently, on June 6, Quarz Capital changed the resolutions.

Now, the upcoming EGM, requisitioned mainly by Quarz Capital, will have five resolutions. After some exchange of letters and announcements between Sabana REIT's manager, HSBC Institutional Trust Services (Sabana REIT's Trustee), and Quarz Capital, Quarz Capital has agreed to amend resolutions 1 and 2, but will keep resolutions 3, 4 and 5. The Trustee's appendix is here with the resolutions. 

Separately, on or around June 14, Quarz Capital wrote to Sabana REIT's manager objecting to the issuance of a $100 million bond that is believed to refinance a $93 million bank loan which matures in 4Q2025. The sustainability bond carries a guarantee by the Credit Guarantee and Investment Facility (CGIF). One of Quarz's objections is that the guarantor would need to approve the appointment of a new manager. Interestingly, EY had already stated that installing a new manager at Sabana REIT (whether internal or not) would trigger a change of control covenant, which would have accelerated the loans anyway.  

The editor of the International Financial Review (IFR) Asia in a comment on June 21 said what many analysts are thinking: "Assuming internalising the REIT manager will save money, which is hard to know because it has never been done before by a Singapore REIT, it's highly likely that Sabana REIT benefits from lower funding costs due to its association with a large group like ESR, and correspondingly, its funding costs would increase under a different manager. ESR warned that a 100bps increase in funding costs would cost up to $8.3 million in interest each year, far outweighing any savings from the new manager. Quarz has done a good job of raising its profile, but it hasn't done much to improve returns at Sabana REIT." 

On July 1, Sabana REIT closed at 32.5 cents, down almost 11% since May 24, the day on which the Trustee announced that the Singapore Court had ruled that ESR cannot vote in an EGM which requires an extraordinary resolution to amend the Trust Deed, analysts observe. "Sabana unitholders have really lost out in this internalisation effort," an analyst says, referring to the costs of $5.4 million plus a further $1.84 million as at 1QFY2024.


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