First REIT is likely to refinance $100 million loan which matures in May this year with a Credit Guarantee and Investment Facility (CGIF). This is a guaranteed bond with a coupon of 3.25% and the issue size is $100 million. S&P Global Ratings assigned its 'AA' long-term issue rating to this guaranteed bond.
CGIF was established in November 2010 as a trust fund of the Asian Development Bank (ADB). Its shareholders are either governments or government-related agencies with strong government links.
The current voting rights are dominated by four contributors: China (29.9%); Japan (29.9%); Korea (15%); and the ADB (15.8%).The 10 ASEAN governments collectively hold the remaining voting rights (9.4%).
CGIF’s mandate is to deepen and develop liquid local-currency bond markets among Asean members. The institution provides guarantees on bonds issued by corporates in Asean. As at Dec 31, 2021, CGIF had issued 52 guarantees. The guaranteed amount typically ranges between US$50 million and US$100 million and generally has a tenor of three to 10 years.
CGIF's equity base was US$1.29 billion as of end-2021. With the help of a series of capital injections and retained earnings in 2021,CGIF's maximum guarantee capacity grew by US$155 million year on year.
“We believe CGIF's creditworthiness benefits from its relationship with its contributors and the mandate they have entrusted it with,” notes S&P Global Ratings.
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CGIF renewed its annual reinsurance arrangement with a syndicate of reinsurers rated between 'AA-' and 'A'. This will boost its guarantee capacity and manage credit concentration risk limits.
The arrangement covers 25% of CGIF's existing guarantee portfolio. Including additional insurance on specific transactions, the coverage by the syndicate increases to about 33% of the portfolio. Coupled with the capital increase, the reinsurance agreement enhances CGIF's guarantee capacity.
ADB manages CGIF's capital, which results in conservative investment policies. “We consider CGIF's extremely strong financial profile to be a positive rating factor. The facility's risk-adjusted capital (RAC) ratio after adjustments as of end-2021 stood at 44.4%--well above our 23% threshold for an extremely strong capital adequacy assessment,” S&P Global Ratings says.
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According to the ratings agency, CGIF should be able to comfortably pay out its guarantees for at least a year under stressed market conditions, without recourse to liquidity facilities from contributors or from the market.
In other words, First REIT's $100 million bond, guaranteed by CGIF, is extremely safe.
