24 November 2015

Dear Editor

We refer to the article by Christopher Langner, David Yong and Pooja Thakur Mahrotri, “Singapore Landlords Discover Perpetual Debt Is the New Equity” (Bloomberg Business, 17 November 2015).

The article mentioned that Singapore landlords are loading up on bonds masked as equity (i.e. perpetual debt) to get around the new requirements to cap borrowings of each REIT to 45 percent of the REIT’s total assets.

We would like to clarify that MAS 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.  The characteristics that must be met include (a) the securities have a perpetual term; (b) the securities are deeply subordinated; (c) dividends or distributions are entirely at the discretion of the REIT and are non-cumulative; and (d) there are no terms that would incentivise the REIT to redeem early.  This clarification was made in MAS’ Consultation Paper on Enhancements to the Regulatory Regime governing REITs and REIT Managers published in October 2014.

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

Bey Mui Leng (Ms)
Director (Communications)
Monetary Authority of Singapore