MAS blocks bid by CIT to manage MI-Reit

THE battle for control of MacArthurCook Industrial Reit (MI-Reit) appears to be over after the Monetary Authority of Singapore (MAS) blocked a rival from managing MI-Reit because of a potential conflict of interest.

Appendix 2 of MAS’s Code on Collective Investment Schemes sets out the responsibilities of property funds, and it is understood that this was the basis for MAS’s decision.

Cambridge Industrial Trust (CIT), which has been angling to take over as manager of MI-Reit, is also in the industrial property space.

‘There’s a clear conflict of interest,’ said Nicholas McGrath, who heads MI-Reit’s manager.

‘If there’s a property to be bought, where would they allocate it to?’

This comes just three days before a crucial extraordinary general meeting on Monday when MI-Reit unitholders will vote on a $400 million debt-and-equity rescue package that its manager says must be approved if the Reit is to survive.

MI-Reit needs to refinance $226 million in loans and meet a $90 million obligation to buy a property in International Business Park by the end of the year.

But CIT – which bought a close to 10 per cent stake in MI-Reit only after it announced the rescue package – said the refinancing deal destroys value as new investors would be getting a large stake in the Reit, massively diluting existing holdings.

It instead proposed that unitholders appoint CIT’s manager to manage MI-Reit, a move that MAS has now torpedoed.

Its chief executive Chris Calvert (who used to manage MI-Reit) had said that there had been talks to secure financing from National Australia Bank and others, and that CIT could use its own debt facility to fund some of MI-Reit’s most immediate needs.

Yesterday, Mr Calvert remained defiant despite admitting that all of CIT’s proposals to rescue MI-Reit had been contingent on it taking over as manager. He said CIT was exploring other options and would still vote against MI-Reit’s plan on Monday.

But Mr McGrath said that CIT owed a duty to its own unitholders to justify risking their capital by blocking the recapitalisation proposal.

CIT spent just over $10 million to buy up 26 million units earlier this month but may lose its investment if the rescue plan is scuppered and MI-Reit is forced into liquidation, he said.

‘The directors and trustee of CIT need to explain to CIT’s unitholders how they justify the decision to risk their capital without proposing any alternative other than possible receivership,’ Mr McGrath said.

He called on CIT to support its recapitalisation proposal.

‘There is no other proposal which addresses the issues which must be immediately addressed for MI-Reit.’

CIT is MI-Reit’s second largest shareholder after George Wang of AIMS Financial Group, its present sponsor.

Yesterday, MI-Reit lost 3.5 cents or 8.7 per cent to close at 36.5 cents in the market as investors fearing dilution bailed out of the trust.

CIT shares lost half a cent, closing at 42 cents.

Businessman Yap Chin Kok of logistics firm YCH Group sold some 8.3 million CIT units, taking his direct and deemed holding to below 6 per cent. The sales took place on Monday.

Source: Business Times,21 Nov 2009