Hemaraj Land & Development Pcl (HEMRAJ), Thailand’s biggest industrial land developer, plans to raise about 4.5 billion baht ($142 million) by selling its first property fund to help finance new projects.
The fund will be backed by rental revenue from factories and warehouses, and the proceeds will be used to develop a new industrial park in Rayong province and pay debt, Chief Executive Officer David Nardone said in an interview in Bangkok yesterday.
Hemaraj joins Thai billionaires Charoen Sirivadhanabhakdi and Dhanin Chearavanont in selling funds backed by real estate to tap local demand for investments offering higher yields than bank deposits or bonds. The company, which helped Ford Motor Co. (F:US) and General Motors Co. (GM:US) build factories in Thailand, plans to spend about 40 billion baht over five years to boost its property, utilities and power businesses.
“They can receive a substantial amount of funds at one time from the sale of assets into the funds, allowing them to avoid increasing leverage from bank loans,” Korawut Leenabanchong, chief investment officer at UOB Asset Management, which oversees about $6 billion of assets, said by phone.
Charoen, Thailand’s richest person, plans to raise about 32 billion baht from a fund backed by revenue from 12 Thai hotels, Somchai Boonnamsiri, chief executive officer of Krung Thai Asset Management Co., the fund’s manager, said on Nov. 15. Dhanin’s CP Land Co. plans to raise about 10 billion baht with a fund backed by 30-year rental rights of three office buildings, said Somchai, who will also manage that fund.
“A property fund would give us a new financing source,” Nardone said, adding that MFC Asset Management Pcl will oversee the fund. “The offering should have no problem as investors are very interested.”
The sales may test investor appetite for Thai assets after a resurgence of political unrest in the country. Overseas investors have pulled a net $4.1 billion out of Thai equities so far this year, the most among Southeast Asian markets, and the benchmark SET Index has retreated 4.5 percent in the past month, making it Asia’s worst performer, according to data compiled by Bloomberg.
“Property funds give investors a way to diversify away from risky equity investments,” UOB Asset’s Korawut said, declining to say whether he would invest in Hemaraj’s fund. “Still, investors will be more cautious and selective with more property funds expected to come to the market.”
Thai real estate funds have provided an annual yield of about 7 percent, according to Krung Thai Asset’s Somchai. The country’s five largest banks offer an average annual interest rate of 1.63 percent on three-month fixed deposits, according to central bank data compiled by Bloomberg.
The country’s 44 property funds have a combined market value of 243.7 billion baht, according to data compiled by Bloomberg.
The Thailand Property Fund Index has fallen 6.8 percent this year after gaining 32 percent in 2012. The SET Index has risen 1.9 percent this year, and rallied 36 percent in 2012. Hemaraj shares, which have climbed 8.6 percent this year, dropped 0.6 percent to 3.28 baht as of 11:33 a.m. in Bangkok.
The company’s profit may rise at least 10 percent next year on rising demand for industrial land and higher earnings from its power units, Nardone said. Net income doubled to 826.8 million baht in the first nine months of 2013, from 408 million baht in the same period a year earlier.
Hemaraj operates six industrial estates on Thailand’s east coast in Rayong, 91 miles (146 kilometers) southeast of Bangkok, and one in Saraburi province, covering a total land area of 15,600 acres (6,313 hectares), according to its website.
Thai property funds mobilize capital by issuing unit trusts and then investing the fund in real estate, according to the Stock Exchange of Thailand’s website. They’re required to invest at least 75 percent of their net asset value in real estate or leasehold rights in Thai property.
The Securities and Exchange Commission has established a regulatory framework to transform Thai property funds into real estate investment trusts, and is seeking public comment on draft revisions to the rules. The shift would allow Thai REITs to invest in assets outside Thailand for the first time.
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