Analysis: Hotel Properties Limited’s SGD Notes, Shares Down on Co-Founder’s Involvement in Corruption Probe; Key Assets Incl. Hotels in Maldives, SG, Investment Properties in SG, Cuscaden Peak Stake; MAE, CoC, Key Man Issues Considered

Relevant Documents:
FY’22 Annual Report
SGD 1B Multicurrency Debt Issuance Programme

Singapore Exchange (SGX) listed hotel operator Hotel Properties Limited’s (HPL) shares are down more than 4% as of July 20 since the company announced that its co-founder and managing director, Ong Beng Seng, was arrested by the Corrupt Practices Investigation Bureau (CPIB) alongside Singapore’s transport minister S. Iswaran on July 14. Depending on the culpability of Ong Beng Seng, the company’s liquidity - and in turn its traded securities - may experience pressure and downside volatility in the near term.

In light of the CPIB probe into controlling shareholder Ong Beng Seng, Reorg has considered issues surrounding material adverse effects, key man provision and/ or a change of control event under HPL’s debt documents.

HPL’s capital structure is as follows:

The SGD 160 million ($121 million) 4.4% perpetuals are indicated in the low 90s as of July 20, which suggests a lower likelihood of the company calling back the perpetuals on Oct. 22, 2024. The coupon rate of the perpetuals will reset at the prevailing 5 year SGD swap offer rate plus an initial spread of 291.5 basis points from Oct. 22, 2024, according to the pricing supplement.

In addition, HPL has four SGD notes maturing in 2025 to 2028 that are broadly indicated in the mid-80s to mid-90s with yield-to-maturities in the 6% to 7.5% handle, according to Refinitiv as of July 21.

As of Dec. 31, 2022, the company’s cash balance stood at SGD 105.3 million, of which SGD 17.4 million is pledged to banks to secure certain credit facilities. Unrestricted cash of SGD 87.9 million represents around 40% of SGD 214.9 million of current bank borrowings. HPL refinanced SGD 48.8 million of its bank borrowings in March 2023, according to its 2022 annual report.

Full-year 2022 operating cash flow (including cash interest) rose 387% year over year to SGD 91.6 million, while free cash flow narrowed to negative SGD 40.7 million from negative SGD 77.3 million in 2021, according to Reorg’s calculations.

CPIB Probe

On July 14, the company announced that its managing director and controlling shareholder, Ong Beng Seng, had been requested by the CPIB to provide information in relation to his interactions with Singapore Minister S. Iswaran. He has been given a notice of arrest and has posted bail of $100,000.

S. Iswaran was arrested on the same day as Ong Beng Seng by the CPIB, and was instructed by Prime Minister Lee Hsien Loong to take a leave of absence until the investigation is completed. Minister Iswaran was questioned for around 10 hours by the CPIB on July 18, according to local news reports.

Ong Beng Seng owns the rights to the Singapore Grand Prix and is chairman of race promoter Singapore GP Pte Ltd, while Minister Iswaran has been actively involved in the government’s engagements with Formula 1. In January 2022, the contract for Singapore to host the Formula 1 Grand Prix was extended for another seven years, from 2022 to 2028.

CPIB has declined to provide further details, citing ongoing investigations. Both Ong Beng Seng and Minister Iswaran are reportedly cooperating fully with the CPIB.

Material Adverse Effect?

HPL had SGD 1.1 billion of outstanding bank borrowings as of Dec. 31, 2022. To the extent that Ong Beng Seng is found culpable under the CPIB probe, lenders may argue that material adverse effects are triggered under certain loan agreements. Reorg has not reviewed any of HPL’s loan agreements.

As a point of reference, a “Material Adverse Effect” is defined in the Asia Pacific Loan Market Association facility agreement template for Singapore law as a material adverse effect on:

• the business, operations, property, condition (financial or otherwise) or prospects of the group taken as a whole;


• the ability of any of the obligors to perform its obligations under any of the finance documents; or


• the validity or enforceability of, or the rights or remedies of any finance party under, any of the finance documents.

If Ong Beng Seng’s potential corruption charge is considered to have a material adverse effect on HPL’s business, this may trigger an event of default under HPL’s loan agreements - depending on the wording and construction of the relevant clause - which may allow lenders to accelerate the loan. Any default and acceleration of HPL’s loans could lead to a cross-default of HPL’s other debts, including its SGD notes.

Key Man?

In addition, if HPL’s loan agreements include a key man provision tied to Ong Beng Seng, his potential resignation from his current role as managing director may have implications on HPL’s business operations, again depending specifically on the wording and construction of such a clause, if any.

Such a key man clause may stipulate that Ong Beng Seng must devote a substantial portion of his working time to HPL's business, cannot engage in competing businesses and could further cover scenarios where he dies, is declared incompetent, incapacitated or unable to handle his own affairs.

Change of Control?

If Ong Beng Seng is found culpable under the CPIB probe and is somehow forced to dispose, transfer or liquidate his stake in HPL, the change of control clause under the SGD denominated notes could become relevant.

As of March 2023, Ong Beng Seng holds a 21.1% direct stake and is deemed to have an interest in an additional 39.4% of HPL through stakes held by 68 Holdings Pte. Ltd., Comojo Holdings Pte Ltd and his spouse Christina Fu:


According to the pricing supplement for the SGD 125 million 5.25% notes due 2028 dated March 7, a change of control event is triggered when any person(s) other than “Permitted Holders” acquires control over the company. Control is defined in the pricing supplement as ownership of more than 50% voting rights or the right to appoint and/ or remove all or the majority of the board or directors.

A Permitted Holder is defined as person(s) who is/ are the immediate family of any person who has control of the company as of the issue date -- this most likely is referring to Ong Beng Seng and his immediate family members.

This further implies that a sale of the combined 55.4% stake held by Ong Beng Seng and 68 Holdings Pte. Ltd. - which Ong Beng Seng controls through Cuscaden Partners Pte. Ltd. - to a single unaffiliated party is likely to trigger a change of control.

Hong Kong headquartered real estate company Wheelock and Company Limited had in December 2018 received a 22.5% stake in HPL in return for divesting its 40% stake in 68 Holdings Pte. Ltd., according to its 2019 annual report.

HPL’s existing loan agreements are likely to also include a change of control clause, which may be worded in a similar fashion as the SGD-denominated notes.

Business Operations

HPL recorded full-year 2022 revenue of SGD 525.5 million - up 52.7% year over year - as performance of its hotels improved due to the post pandemic reopening of borders. The hotel division contributed 96% of full-year 2022 revenue while the properties division contributed the remaining 4%.

By geography, 43% of 2022 revenue was from operations in the Maldives, 31% of revenue was from Singapore, 21% of revenue was from the rest of Asia and the remaining 5% of revenue was from the United Kingdom, Europe and others:

As at Dec. 31, 2022, the hotel division has a portfolio of 38 hotels and resorts in 15 countries, including Kanuhura Maldives - acquired in September 2021 - which is expected to open in the second half of 2023.

The company’s hotel assets are recorded under property, plant and equipment (PPE) at cost less accumulated depreciation. As of Dec. 31, 2022, HPL’s PPE was carried at SGD 1.616 billion, of which SGD 1.309 billion or 81% of the PPE were mortgaged to banks to secure credit facilities of the company.

The properties division comprises prime commercial and retail properties in Singapore, valued at a combined SGD 708.1 million as of December 2022. The company also recently completed construction of two London office buildings - Bankside Yards West - Arbor and Paddington Square.

Singapore Press Holdings Privatisation

In March 2022, 89% of shareholders of Singapore Press Holdings Limited (SPH) voted in favor of a proposal by Cuscaden Peak Pte. Ltd. to acquire all issued ordinary shares of SPH by way of a scheme of arrangement, valuing SPH at around SGD 3.8 billion.

At the time of the offer, Cuscaden Peak Pte. Ltd. was 40% owned by HPL - through 70% owned subsidiary Tiga Stars Pte Ltd - while Temasek-controlled CLA Real Estate Holdings Pte Ltd and Mapletree Investments Pte Ltd each held a 30% stake. Temasek is one of Singapore’s sovereign wealth funds.

As part of the SPH privatization, Cuscaden Peak Pte. Ltd. acquired a 61.4% stake in Paragon REIT, which is listed on the SGX with a market capitalization of SGD 2.67 billion as of July 20.

According to HPL’s 2022 annual report, the company’s effective interest in Cuscaden Peak Pte. Ltd. was 18.5% at the end of the year, which suggests that Tiga Stars Pte Ltd may have sold a portion of its stake. Cuscaden Peak Pte. Ltd. and its subsidiaries recorded total assets of SGD 8.58 billion and total liabilities of SGD 8.69 billion as of Dec. 31, 2022. For 2022, it reported SGD 307.5 million of revenue and a net loss of SGD 4.2 million.