Frasers Commercial Trust to cut debt level

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FRASERS Commercial Trust (FCOT) is set to give its business a much-needed
boost via a $213.9 million rights issue, the acquisition of a business park
building and $675 million of refinancing facilities.

The real estate
investment trust (Reit), which has been in the spotlight recently over
financing hiccups, will use a 3-for-1 rights issue to address its high gearing
and help complete debt refinancing.

FCOT's manager, Frasers Centrepoint
Asset Management (Commercial), announced yesterday that the Reit is also
acquiring Alexandra Technopark for $342.5 million from a wholly-owned
subsidiary of Frasers Centrepoint, Orrick Investments.

The purchase
comes with a master lease over the 99-year leasehold park for five years at an
annual net rental of $22 million, which works out to a 6.4 per cent yield.

In another move, FCOT said it had secured debt facilities of $675 million to
refinance debt maturing this year. FCOT's gearing rose to 58.3 per cent at the
end of the first quarter as its property portfolio was hit by a net revaluation
deficit.

The company had gross borrowings of $945.5 million, of which
$624.5 million is maturing in the second half of the year.

FCOT's
highly leveraged capital structure has been a major cause of concern among
analysts and investors.

The refinancing facilities, along with a large
part of the rights issue proceeds, will be used to repay a significant amount
of FCOT's outstanding debt, including all the debt that is maturing this
year.

When the refinancing and acquisition are completed, FCOT will not
have any debt due until 2012, said the manager's chief executive Low Chee Wah.

And FCOT's gearing will be cut to 38.5 per cent, he added.

FCOT
is paying for Alexandra Technopark by issuing convertible perpetual preferred
units. These are units which will give a distribution rate of 5.5 per cent per
year and FCOT unit holders can subscribe for some of them.

After the
non-convertible three-year period, FCOT can choose to redeem the preferred
units.

FCOT's rights issue price of 9.5 cents is at a discount of 60.4
per cent to the closing price on Monday. Trading was halted yesterday.

The Alexandra Technopark deal will boost FCOT's asset base to $2 billion and
will provide exposure to the business space segment, which is less volatile
than the currently weak office sector.

Fraser & Neave's property arm
Frasers Centrepoint bought over Allco Commercial Reit last year and dropped
earlier plans for the listing of a commercial property trust.

Alexandra Technopark was one of three properties earmarked for that
trust.

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