Saizen REIT is suddenly getting a lot of attention. This is certainly a far cry from the time when I first blogged about it in 2009.
Now, with a price of $1.10 a unit, many are wondering if they could benefit from arbitrage.
Buy at $1.10, get one round of income distribution and get to receive $1.17 sometime middle of next year.
In a comment I made last evening in my last blog post on Saizen REIT, I said that we might not get $1.17 a unit next year because the buyer will only pay 95% of the consideration with the balance 5% to be retained in an escrow account.
Basically, if the buyer should identify some engineering work required for the assets being acquired, they have the right to draw upon the money in the escrow account for remedial work. They will have 28 days to do this.
We can only hope that there isn't that much engineering work required and that most of the money in the escrow account would be released to Saizen REIT in due course.
There was also a worry about exchange rate and how a weaker JPY in the next few months could affect payment to shareholders in S$.
This is no longer a concern because the very prudent management at Saizen REIT have entered into a currency hedging arrangement.
So, for those who would like to buy into Saizen REIT to enjoy some arbitrage benefit, what should we do?
Anything below $1.11 would be safer. Buying at prices higher than that would be making a wager on the buyer not drawing too much upon the funds in the escrow account.
Finally, take heed the warning provided by Mr. Chang Sean Pey that there is no assurance or certainty that the transaction will be completed. So, trade with caution.
See: Hedging arrangements.
Saizen REIT: Firm offer by Lone Star.