We believe the rights-issue announcement is not a flip-flop, but further evidence that the manager is managing proactively its capital and responding opportunistically to market opportunities when they arise.
After the rights issue, CCT’s aggregate leverage ratio, which already reflects a 10% asset-value write-down from December 2008 valuations, would fall to 30.7%.
We estimate that the ex-rights FY09 DPU yield (assuming that CCT trades at S$0.755, or 0.5x adjusted NAV of S$1.51) would be 9.0%, compared with 8.2% at the theoretical ex-rights price (TERP) of S$0.825, and 11.9% assuming no rights issue.
We have lowered our six-month target price, based on our RNG valuation method (a modified form of the Gordon Growth Model), to S$0.94, ex-rights (from S$1.54 before the announcement). The valuation decline comes from a doubling of units outstanding, offset partially by a lower debt assumption.
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