OUE C-REIT faces tough balancing act to dodge credit rating downgrade after One Raffles Place deal

It must be funded equally by debt and equity.

OUE Commercial REIT recently hogged the headlines with its proposed acquisition of a stake in the iconic One Raffles Place. Although the deal will increase its asset base significantly and diversify its portfolio, Moody's Investors Service says that the group will need to do a balancing act to keep its credit rating intact post-acquisition.

Moody’s noted that the trust will need to fund the acquisition with an equal proportion of debt and equity to keep its financial metrics within the parameters of its Ba1 rating.

"Based on OUE C-REIT's total deposited assets as of 31 March 2015, we expect that the trust can raise its debt levels by around SGD890 million before reaching 45% leverage; which is our maximum tolerance level for its Ba1 rating category," said Jacintha Poh, a Moody's Assistant Vice President and Analyst.

While OUE C-REIT plans to fund the proposed acquisition through a combination of debt, equity and convertible perpetual preferred units, it is unclear as to what proportion will comprise debt.