Perpetual debts do not circumvent rules for Reits

We refer to the report “Perpetual debt the new equity for S’pore landlords” (Nov 18).

It mentioned that landlords are loading up on bonds masked as equity, i.e. perpetual debt, to get around the new requirements to cap borrowings of each real estate investment trust (Reit) to 45 per cent of the Reit’s total assets.

We wish to clarify that the Monetary Authority of Singapore allows hybrid securities such as perpetual debt to be treated as equity for the purpose of the Reit leverage rules, if such securities have the characteristics of a permanent form of capital.

Characteristics that must be met include: The securities have a perpetual term; the securities are deeply subordinated; dividends or distributions are entirely at the Reit’s discretion and are non-cumulative; and there are no terms that would incentivise the Reit to redeem early.

This clarification was made in the MAS’ Consultation Paper on Enhancements to the Regulatory Regime governing Reits and Reit Managers, published in October last year.

Securities that do not meet such criteria are subject to the leverage rules. Conversely, the treatment of securities that have the characteristics of permanent capital as equity would not amount to a circumvention of the rules.