KUALA LUMPUR: WCT Holdings Bhd's plan to set up a real estate investment trust (REIT) is a good opportunity for the group to lighten its balance sheet and reduce its debts, said MIDF Research.
While maintaining its "neutral" stance on WCT with an unchanged target price of 97 sen, the research firm expects this development to lead to the successful establishment of Paradigm REIT, which could generate some trading interest.
"The pro forma effects of the proposals as laid out in the bourse filing yesterday showed that WCT will be able to slash its net gearing from 0.72 times to 0.33 times.
"WCT will still be able to benefit from the three malls through the dividends that can be expected from the proposed paradigm REIT and the fees from management services. On the construction front, we believe the prospects remain healthy for the group to secure new jobs," it said in a research note.
MIDF Research maintains WCT's earnings projections at this juncture pending further clarity on the issue price that will be determined at a later date and the timeline.
On Wednesday, WCT proposed the establishment of Paradigm REIT to be listed on the Main Market of Bursa Malaysia.
It has also identified retail shopping malls to be included in the REIT, which will be disposed of by the subsidiaries and a joint venture to Paradigm REIT.
Its wholly owned subsidiary Gemilang Waras Sdn Bhd (GWSB) will dispose of Bukit Tinggi Shopping Centre (BTSC); 70 per cent joint venture Jelas Puri Sdn Bhd (JPSB) will sell Paradigm Mall Petaling Jaya; while WCT Hartanah Jaya Sdn Bhd (WCTHJ), its indirect wholly owned subsidiary, will dispose of Paradigm Mall Johor Bahru (PMJB) for a total disposal consideration of RM2.437 billion.
The exercise will be satisfied via the issuance of 1.6 billion new undivided interest in Paradigm REIT (units), assumed to be RM1 per unit and to be credited as fully paid-up as well as RM837 million cash.
The cash will be funded from the issuance of medium-term notes (MTNs) under an MTN programme to be established by a special-purpose vehicle.
Of the 1.60 billion units, 560 million units, or 35 per cent will be made available for sale, whereby up to 305.3 million units (19.1 per cent) are for institutional offerings and up to 254.7 million units (15.9 per cent) for retail offerings.
"We estimate that WCT's effective stake in Paradigm REIT would be 60.7 per cent. Application to the relevant authorities for the proposals is expected to be submitted within two months, and the timeframe for completion is expected to be by the first quarter of next year," MIDF Research said.