F&N plays hardball with bond investors


* Sale of core assets could trigger technical default

* Bondholders could get paid less than market prices

* Investors complain of unfriendly consent solicitation

By Kit Yin Boey

SINGAPORE, Nov 1 (IFR) - The Thai owners of Singaporeblue-chip Fraser & Neave are heading for a showdown withbondholders over plans to spin off the group's core propertyasset.

F&N has launched a consent solicitation exercise forS$808.25m (US$652.7m) of outstanding Singapore dollar bonds toavoid triggering an event of default from the listing of FrasersCentrepoint and to pay down the debt ahead of maturity.

The process, however, has kicked up a storm in the investorcommunity. Investors are generally unhappy with the redemptionstructure, a lack of communication from the company and thethreat of a technical default.

"The crux of the problem is that F&N is taking a hardlineview - take it or leave it to default. You can't treat investors- who have supported you in the past and who will be needed tosupport you in the future - like that," said one investor.

The consent exercise comes after F&N obtained regulatoryapproval to spin off its property arm Frasers Centrepoint into aseparate listing.

The property assets are a core business in the F&N group,contributing about 60% to the group's revenues. This will leaveF&N, which intends to remain listed, as a smaller company withinterests mainly in food and beverage businesses.

The spin-off will breach certain covenants in the bonds,meaning F&N needs to obtain bondholder consent to waive an eventof default. The exercise also includes the addition of a calloption on or before June 30, 2014 in all the notes, as F&Nintends to redeem the six outstanding bonds after the spin-off.

F&N has decided on a redemption payment structure, where therespective bondholders will receive the nominal principal sum,accrued interest, an early bird consent fee of 25bp and apre-payment fee equal to half of the coupon.

This structure will mean that some investors are in line toreceive more than the market value for their notes, while otherswill lose a fair bit.

One investor holding F&N's 5.5% notes due 2016 estimatedthat he would get only 103 cents on the dollar versus thecurrent market value of 107. "I lose 4 points, while thoseholding the 2.48% 2016s will gain. Why should I be penalisedjust for holding a higher-paying coupon bond for the samematurity?" he added.


Such complaints have met with little sympathy from F&N.

"F&N will be a very different company now with FCL carvedout. We appreciate their support in the past. The consentexercise provides them a prepayment fee and a consent fee. Ifconsent is not obtained, then an event of default will occur andunder the terms and conditions of the notes/bonds, repaymentwill be at par," said a spokesperson for F&N.

If bondholders do not approve the changes, F&N could simplybreach covenants and then cure a technical default by repayinginvestors at par.

A technical default by a blue-chip company in Singapore isunheard of and will cause waves in the bond market. It alsopoints to an aggressive approach to the capital markets by F&N'snew owners.

After F&N was acquired by Thai billionaire CharoenSirivadhanabhakdi in a US$11.2bn takeover earlier this year,some bondholders said there was little engagement from the newmanagement on the impact on their assets.

The news of the FCL spin-off also came as a surprise to someinvestors, who complained that there was no discussion of thedevelopment or the impact on their investments even though itwas a potential technical breach. They also said the consentsolicitation structure was imposed on them with no preliminaryconsultation.

"That lack of engagement in the early stage set the stagefor some unhappy investors," said one credit analyst at a fundcompany. "We had asked many times for meetings with themanagement but we were told they were not keen to meet."

This was disputed by the F&N spokesman. "We met those whohad requested for meetings with the F&N management, but declinedrequests for meetings with FCL management and we also metinstitutional investors as part of the demerger roadshow topromote and explain the demerger and some of them had includedmembers of their credit teams as well," he added.

The spokesman pointed out that the company had to beconsistent and fair to all noteholders and bondholders byfinding a middle ground, but acknowledged that not all of themwould be happy.

"To be fair to the investors we met, we had not worked outthe consent solicitation process at that time, but we certainlyshared the impact of the demerger with them."

The six outstanding bonds are a S$150m 3.62% due 2015,S$108.25m 5.5% due 2019, S$200m 6.00% due 2019, S$50m 2.45% due2015, S$220m 2.48% due 2016 and S$80m 3.15% due 2018.

The early bird deadline is on November 7, while the consentexercise ends on November 12 with a bondholder meeting scheduledfor November 14. In short, resolution will come very soon, forbetter or for worse. (Reporting By Kit Yin Boey; Editing by Christopher Langner andSteve Garton)

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