Business trust to pay higher yields than Reit

Published February 13, 2006
BT

Prospectus of first business trust expected this week


By SIOW LI SEN

ASIA'S first business trust is likely to pay higher yields than a real estate investment trust (Reit) and DBS Bank has confirmed the imminent listing of the new asset class on the Singapore Exchange.


With Singapore as the only Asian country to have the business trust framework, it is likely to be an attractive venue for regional assets to be listed here, said Steve Finch, managing director of debt capital markets at DBS Bank, which is expected to bring the first business trust to the market.

Business trusts are new income instruments which provides direct access to cash flows generated from its assets which could be in any business.

The assets of the business are held in a managed trust that is beneficially owned by unit holders.

Real estate can also opt to be structured into a business trust, in which case, they will adhere to the regulatory framework of a business trust which, among other things, requires a higher standard of independence on the board of directors compared to Reits.

Assets providing stable cash flows which are suited for structuring into a business trust include infrastructure projects, utilities, transportation and natural resources.

The prospectus of the first business trust is expected to be lodged this week, although Mr Finch would only say it is 'imminent'.

The first business trust to be listed is understood to be a global business worth hundreds of millions of dollars, run by a Singapore company, asset-heavy and producing a steady income stream.

On the prospective yield, Mr Finch said investors should look not only at the current yield but also the likely growth of the business.

'The first Reit started with 6 or 7 per cent and then it was much higher because there was capital gain, so you could see a similar situation with a business trust,' he said.

'You need to look at the underlying asset and judge how dependable the income stream is.'

'It (the business trust) might have a higher yield to compensate for a different type of asset class,' he said.

He said investors are quite comfortable with Reits which have become popular, partly because their assets are highly visible buildings.

'I would say that you would probably expect to see a slightly higher yield than Reits and it also depends on the currency. Depending on what the asset is, depending on what the income stream is denominated in, it may not be in Sing dollars,' he said.

Singapore, being the only Asian country with a business trust framework, is an attractive venue for listing of regional assets, he said.

'There is plenty of opportunities to expand this business. I certainly see substantial ongoing demand for an income product, both from retail and institutional.'

Companies with regional assets will also find the structure attractive to raise capital for their infrastructure, transportation and raw material assets, he said.