Apr 21, 2014

    Takeover bids put focus on asset plays

    CHEAP asset plays are back in favour on the local bourse.

    Takeover fever swept across the market last week, as CapitaLand announced plans to buy up the rest of CapitaMalls Asia (CMA), while business tycoon Ong Beng Seng teamed up with Wheelock Properties to buy out his listed firm, Hotel Properties (HPL).

    In so doing, they livened the trading scene and helped to propel the benchmark Straits Times Index 1.57 per cent higher for the week. This was despite the lacklustre performance of other regional bourses, with the Hang Seng falling 1.84 per cent and the Shanghai Composite Index down 1.66 per cent in the same period.

    But the most important message which the two takeover efforts send to the market is the neglect suffered by companies with good quality assets as a result of lack of investors' interest.

    CapitaLand is offering a mere 10-cent premium to CMA's 2009 IPO price of $2.12 to take the company private at $2.22 apiece.

    This is despite the fact that CMA's assets have grown by 37.7 per cent from $5.3 billion to $7.3 billion in the past four years.

    As for HPL, the takeover price of $3.50 is estimated to be a discount of 25 per cent over the revalued net asset value of about $4.66, made in a Maybank Kim Eng research report last year.

    The takeover bid revived talk that the joint bidders might be taking advantage of HPL's depressed share price to buy up the company in order to redevelop its assets to their fullest potential.

    HPL has prime assets along Orchard Road, such as Hilton Singapore, Four Seasons Orchard and Forum the Shopping Mall, while Wheelock Properties owns Wheelock Place, an office and retail development just separated from HPL's assets by the Angullia carpark.

    For older traders, the latest privatisations may be a case of history repeating itself, benefiting companies which have the foresight to buy up assets at low valuations as they wait for the market cycle to turn in their favour.

    One good example that comes to mind would be the buyout efforts made by Keppel Corp of its listed units way back in 2001, after it sold its stake in Keppel Capital to OCBC Bank.

    In quick succession, it took Keppel Fels Energy & Infrastructure (KepFels) and then Keppel Hitachi Zosen private. The two firms later formed the bedrock for the conglomerate's expansion into the rig-building and offshore businesses.

    What is interesting to note was that Keppel Fels was taken private at only $1.55 a share.

    While the offer price was at a 21 per cent premium to its last-traded price before the takeover was announced, it was at a 11.5 per cent discount to its net tangible assets at that time.

    For analysts, the big game is guessing the next privatisation candidate on the cards.

    CIMB said in a recent report: "In March, new-economy stocks wobbled, while old-economy stocks got takeover bids.

    "Asia certainly does not lack cheap old-economy names. These tend to be asset-backed and a good chunk are in Singapore and Hong Kong."

    While most investors are betting on companies in the property sector as potential takeover candidates, CIMB believes that the qualifying criteria would include having "hard" assets, trading at a deep discount to asset value, and having a shareholder with deep pockets who may be interested in taking the company private.

    It said: "Expanding the list beyond the property space, we think that names such as Tiger Airways, ASL Marine, Dyna-mac, CH Offshore, CWT, Biosensors and Sunvic Chemicals also count as credible candidates."