THE sale of a 44 per cent interest in Overseas Union Enterprise (OUE) for $957 million will bring closure to a five-year partnership between two South-east Asian tycoons that went sour. But it is unlikely to catalyse the resolution of any business differences that remain.

On Tuesday, Indonesian James Riady’s Lippo group doubled its interest in OUE, Singapore’s second largest hotel operator, following a deal to acquire an effective 44 per cent from his estranged Malaysian partner T Ananda Krishnan. Lippo paid Mr Krishnan’s privately held Usaha Tegas (UT) group $957 million, or $11 per OUE share.

The price was a reasonable reflection of market conditions, analysts said. But an executive familiar with Mr Krishnan’s style said that the tycoon – considered the second richest man in Malaysia after billionaire Robert Kuok – probably broke even.

‘It’s a wash,’ he told BT on condition of anonymity. ‘UT paid $10.20 a share and then you have to consider three years of financing at 4 per cent. So I’d say they came out even.’

Other analysts said that the deal could have mitigated any downside risk Mr Krishnan might have faced from a possible oversupply of hotel rooms in Singapore in the future. The completion of the integrated resorts (IRs) is expected to add over 4,000 hotel rooms to the island, adding pressure on OUE’s earnings from the increased competition.

Even so, the deal had been brewing for some time. The two partners had disagreements over strategy and the future direction of OUE, and Mr Krishnan’s allies had complained of having little say in the firm’s management. That came atop festering problems that had begun over a failed satellite-TV business in Indonesia.

In fact, two weeks ago Mr Krishnan’s Astro All-Asia Networks won US$230 million from a Singapore arbitration panel in a claim against Lippo in Indonesia. Astro, a listed satellite-TV operator in Malaysia, had written down over RM1 billion (S$419 million) in relation to the Indonesian venture.

The OUE disagreements had been heading that way with the matter already under arbitration in Singapore – over differences in the interpretation of the original shareholder agreement – when the deal was brokered.

The transaction brings to a close a five-year partnership that had initially promised to become a regional powerhouse in telecommunications and property. But it may not be altogether amicable for it does not imply an easy resolution to, say, the Astro award which has to wend its way through the Indonesian courts.

Indeed, for the award to be recognised there, it has to be registered first with Indonesia’s Supreme Court – which isn’t a given. ‘This sale is completely divorced from the Astro award,’ said the executive. ‘For that, Astro has to go through the process, and it has said it will do what it takes.’

The partnership began in 2005 when a joint venture was set up to operate a pay-TV business through a Lippo unit. The business was enmeshed in problems from the start, apparently, but it didn’t seem to stop the partnership from flourishing elsewhere.

Later that year, Maxis Communications, Mr Krishnan’s listed Malaysian mobile phone unit, bought a controlling 51 per cent interest in Lippo’s cellular phone firm Natrindo for US$100 million. The next year, the partners once again joined forces in Singapore to acquire control of OUE for $1.8 billion.

In 2007, Maxis bought out Lippo completely in Natrindo for US$124 million. This happened while there was friction over at the pay-TV business over unpaid services.

The clincher took place two months later when Mr Krishnan took Maxis private in Malaysia’s biggest deal ever. A little later, he brought in Saudi Telekom, which took up 25 per cent of Maxis and 51 per cent of Natrindo in a deal worth US$3.05 billion.

It incensed Mr Riady and, according to some news reports, his allies accused Mr Krishnan of having lined up the Saudi telecom firm before taking over Natrindo. It is a claim that Mr Krishnan’s camp has refuted.

Source : Business Times – 11 Mar 2010

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It will be business as usual for Overseas Union Enterprise (OUE), even as Indonesia’s Lippo Group takes sole control of the property firm.

‘There will be no change to OUE’s strategy,’ Lippo told BT yesterday. ‘Leveraging on its hospitality experience, OUE will continue to develop and manage landmark properties in prime locations in Singapore and across the region.

‘Under Lippo’s stewardship, OUE will continue to focus on retail, commercial and residential developments, which will allow the group to achieve sustainable growth over the long term.’

Questions over OUE’s direction surfaced after it underwent a significant ownership change on Tuesday. Its major shareholder Lippo paid $957 million – or $11 per share – to acquire the stake of another major shareholder Usaha Tegas.

This raised Lippo’s direct and indirect interests in OUE to 88.52 per cent from 64.67 per cent. Lippo president Stephen Riady also became OUE’s executive chairman.

Lippo is controlled by the Riady family and Usaha Tegas by Malaysian tycoon Ananda Krishnan. Talk of tension between two of the region’s richest business groups have been making its rounds, as both parties got into a legal battle over a failed pay-TV tie-up in Indonesia.

Last month, Mr Krishnan’s subscription TV group Astro won an award of some US$230 million against Lippo.

Lippo did not say if differences with Mr Krishnan drove it to take over the latter’s stake in OUE. But it shared that the deal came about after Bank of America Merrill Lynch approached both parties ‘with an attractive and compelling proposal’.

Lippo added: ‘We have been in discussions since that time and believe that this transaction makes sense and will benefit all parties.’

It is tapping on internal funds and bank borrowings to raise the $957 million needed.

Yesterday, OUE’s share price dipped slightly by 18 cents or 1.5 per cent to close at $11.80. At this level, the price still exceeds the $11 which Lippo valued each additional share at. It also remains much higher than the closing price of $9.04 last Friday.

Lippo reiterated that the deal will ‘further strengthen its asset base in Singapore’. It has been active in the property market here even on its own, with residential projects such as Holland Collection and Centennia Suites under its belt. Its unit PT Lippo Karawaci is also the sponsor of Lippo-Mapletree Indonesia Retail Trust.

‘Lippo is very comfortable with Singapore and has always looked for opportunities to expand its presence here,’ said Chesterton Suntec International research and consultancy director Colin Tan.

He did not rule out a delisting of OUE – its free float just slightly exceeds 10 per cent. But this might not happen until Lippo ‘contemplates its next course of action,’ he said.

Source : Business Times – 11 Mar 2010

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Since 2006, the two parties have jointly controlled OUE, whose prized assets include the Mandarin Orchard hotel.

However, Lippo and Mr Ananda are said to have suffered strained relations in recent times in various business tie-ups between the two around Asia.

The OUE deal is seen as a signal that they may be going their separate ways.

OUE’s other key properties include Overseas Union House, which is being redeveloped as office building 50 Collyer Quay.

Lippo’s controlling stake in OUE will increase to 88.52 per cent after the deal. Lippo will now be easily the largest shareholder of the mainboard-listed firm.

The level of OUE shares held publicly – 11.48 per cent – does not change. Stock exchange rules say the minimum is 10 per cent. OUE said it plans to stay listed.

Lippo and Mr Ananda acquired their stakes in OUE after United Overseas Bank and its affiliates sold their stake to a joint-venture company controlled by the two parties for $10.20 a share.

Since then, OUE has embarked on a $200 million revamp of the Mandarin Gallery. In addition to 50 Collyer Quay, a 38-storey extension to OUB Centre is being built with the combined development called One Raffles Place.

Yesterday, Lippo was keen to stress that it ‘strongly believes in the resilience and growth potential of the Singapore real estate and hospitality market’.

It has decided to lift its OUE stake to ‘further strengthen its asset base in Singapore’, given the opening of the integrated resorts and Orchard Road’s rejuvenation.

Lippo said in a statement that OUE will continue to focus on its core hospitality business, and strengthen its position in the premier retail and commercial space.

Market watchers say having a single controlling owner will enable OUE to be more nimble in responding to conditions.

The deal comes amid market talk that the alliance between the two partners has been under stress for some time.

In 2005, Lippo and Mr Ananda had agreed to set up a joint venture to operate a pay-TV business in Indonesia.

The two also partnered on a cellular operation in Indonesia and later on OUE.

But last month, The Straits Times reported that Mr Ananda’s satellite television operator Astro had won an award after arbitration against Lippo Group over the failed pay-TV business, said to be US$230 million (S$322 million).

While Lippo no longer has any role in the cellular operation, the OUE joint venture has apparently been dogged by disputes over how the property firm should be managed, market players said. Sources said staff morale had been affected.

The two parties had been looking to resolve the issue for some time, market talk suggested. Yesterday’s announcement ended some of this underlying uncertainty.

Lippo has a significant presence in Singapore. Other than OUE, it is behind Singapore’s first health-care real estate investment trust, First Reit.

There is also the Lippo-Mapletree Indonesia Retail Trust, which owns shopping malls in Indonesia.

Lippo is also developing several residential properties, including The Trillium and Centennia Suites in the River Valley Road area.

Yesterday, questions were raised about the funding of the deal, given the large price tag and the fact that most or all will be paid in cash. It is believed that it will come from a combination of internal resources and borrowings.

The price of $11 per share was a mutually agreed price, sources close to the deal said. The net asset value of OUE shares is $10.37 based on the Dec 31 financial statements although some market players say the shares could be worth close to $14.

Yesterday, the thinly traded counter jumped $2.94 to close at $11.98 with only 146,000 shares traded.

Mr Stephen Riady, Lippo’s president, will be OUE executive chairman, after the deal closes. He is now also OUE’s executive director.

Source : Straits Times – 10 Mar 2010

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Yesterday, the Riadys’ Lippo Group paid some $957 million to acquire all of Mr Krishnan’s stake – and greater control – in the mainboard-listed property group.

With the deal, Lippo’s direct and indirect interests in OUE rose to 88.52 per cent from 64.67 per cent.

OUE’s free float after the deal will only slightly exceed 10 per cent, putting it at risk of delisting. Nevertheless, Lippo said that it intends to keep the firm listed.

The buyout is the latest display of differences between two of the region’s richest business groups, which have been in legal battle over a failed satellite TV venture in Indonesia. Just last month, Mr Krishnan’s subscription TV group Astro won an award of some US$230 million against Lippo.

The bad blood seemed to have spilled over to the partnership in OUE. Reports noted how the two parties had disagreements over the management of the firm.

Yesterday morning, OUE called for a trading halt in its shares before news of the ownership changes broke. Lippo’s investment unit Golden Concord Asia bought direct and indirect stakes in OUE from Barinal, a unit of Usaha Tegas. Usaha Tegas is Mr Krishnan’s private investment holding firm.

Lippo paid $11 per share for the additional interest. The price represents a premium of 21.7 per cent to OUE’s last closing price of $9.04 last Friday. After trading in OUE resumed later in the afternoon, the counter shot up and closed at $11.98, up $2.94 or 32.5 per cent from Friday.

OUE’s board underwent a reshuffle to reflect the ownership changes. Lippo president Stephen Riady became executive chairman of OUE, a step up from his original role as executive director.

Christopher James Williams, who was OUE’s non-executive chairman, became deputy chairman. At the same time, Barinal’s four nominees to the board resigned, and a new non-independent and non-executive director joined the team.

Lippo, meanwhile, expressed confidence in the growth potential of Singapore’s property market, and said that the deal allowed it to strengthen its asset base here.

‘This transaction is testament to our commitment to Singapore and to being a key player in the vibrant property and hospitality sector here,’ Mr Riady said. ‘OUE will continue to focus on its core business in hospitality, as well as to strengthen its position in the premier retail and commercial space.’

OUE’s portfolio cuts across the hospitality, retail, commercial and residential sectors. It is widely known as the owner of Mandarin Orchard Singapore, the recently revamped Mandarin Gallery and The Grangeford. It is also developing 50 Collyer Quay.

As at December last year, it had some $2.77 billion worth of assets. It posted a net loss of $92.2 million for the full year ended Dec 31, mainly due to fair-value and impairment losses.

OUE was controlled by United Overseas Bank up until 2006, when the latter had to dispose of non-core assets to comply with the Monetary Authority of Singapore’s guidelines. Lippo and Usaha Tegas then joined hands to acquire the property firm for $1.8 billion.

With relationships between the two major shareholders souring, market watchers felt that the latest development could be in OUE’s interests.

According to NUS Business School’s professor of accounting Mak Yuen Teen, having several major shareholders in a company can sometimes be a good thing because they can ‘monitor each other’.

But he also pointed out that the company would not be able to move forward if the major shareholders are not on good terms. In such a case, it would be better to ‘get past hostilities’ and have just one major shareholder.

Another industry insider agreed that the deal could be better for OUE’s development. But he also tried to play down the significance of the buyout. ‘Quite often, people pull out of a company if they don’t share the same vision. . . It’s just about business.’

Source : Business Times – 10 Mar 2010

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The acquired stake was previously held by a Malaysian conglomerate with interests in telecommunications, media, power and gaming.

Upon the completion of the transaction, Lippo will hold a 88.5 per cent stake in OUE.

OUE is a property and hospitality player in Singapore that develops, owns and manages a wide portfolio of assets in the hotel, retail, residential and commercial sectors.

Lippo said it strongly believes in the resilience and growth potential of the Singapore real estate and hospitality market.

This is especially so in light of new growth drivers such as the opening of the integrated resorts and the rejuvenation of Orchard Road.

The company said it acquired the additional shares in OUE to further strengthen its asset base in Singapore.

Source : Channel NewsAsia – 9 Mar 2010

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