Keppel Corporation on Friday (Jan 23) launched a voluntary unconditional cash offer for all the remaining shares of subsidiary Keppel Land.
Keppel Corp, the world’s largest maker of offshore oil rigs, currently owns 54.6 per cent of Keppel Land, a major Singapore property developer.
Keppel Corp said it is offering a base offer price of S$4.38 for each Keppel Land share. A higher offer price of S$4.60 per share will be paid if Keppel Corp is entitled to exercise its rights of compulsory acquisition. This values the developer at between S$6.8 billion and S$7.1 billion.
Explaining the rationale for the offer, Keppel Corp CEO Mr Loh Chin Hua said Keppel Corp wants to be a strong conglomerate with sizeable contributions from its three core businesses. “This is a sound and well-timed investment in a business which has been integral to Keppel Corp and is in core markets like Singapore, China, Indonesia and Vietnam – where we hold a long-term positive view,” he added.
At S$4.38, the offer represents a 20 per cent premium over Keppel Land’s last traded price of S$3.65 before the counter was suspended from trade.
Keppel Corp said it believes the offer price is “fair and compelling” and it does not intend to revise it.
Mr Chan Hon Chew, chief financial officer of Keppel Corporation, said: “We believe what we have offered for the remaining stake in Keppel Land in this current depressed property market is fair, this offer will be funded through a combination of internal cash and borrowings of Keppel Corporation.”
Keppel Corp said the move is not predicated on short-term recovery in the property market, but rather in its belief in the long-term prospects of the real estate market in Asia, as well as the trend of urbanisation where more people will be moving to the cities.
It added that privatising Keppel Land would also help to drive collaboration across its core businesses – namely offshore and marine, property and infrastructure.
There are also other benefits. Mr Loh said: “It is actually highly accretive to us and it is a business that we already know for over 30 years.
“One of the rationale would be that if the privatisation does succeed, if we can do that, the group itself, in terms of our financial strength, in terms of our credit, we would be able to give that advantage, not so much in more debt, but more in terms of lower cost in debt.”
Commenting on the offer, Voyage Research said if it is successful, it could help drive earnings growth for Keppel Corp, and it is also a way to diversify its business.
Mr Liu Jinshu, lead analyst at Voyage Research, said: “If you look at current oil prices, I think the offshore and marine sector may be under some form of margin pressure, especially new investments in say certain oil projects that were to decline or withdrawn due to low oil prices.
“So from this perspective, we can argue that Keppel Corp is diversifying away from its reliance on offshore and marine and ‘beef up’ its earning base by fully acquiring Keppel Land.”
Based on an offer document despatch date of Feb 13, 2015, Keppel Corp said the earliest closing date permitted under the takeover code is by Mar 13, 2015.
Keppel Corp said the trading halt is expected to be lifted for both companies on Monday, and analysts expect the stocks to be actively traded.
Source : Channel NewsAsia – 24 Jan 2015