SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

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Equity Bottom-Up

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As far back as he can remember, the twin touchstones of Paul Tham’s life have been wisdom and learning. 
Growing up, a familiar mantra was one expounded by the Book of Proverbs in the Bible – “Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding”. 
“My godfather taught me the importance of wisdom and understanding,” the CEO of the manager of SGX-listed Keppel REIT recalled. “Both are tied to two key skills – the willingness to learn, as well as the ability to learn continuously – and involve lots of hard work.” 
Driven by a passion to build and create, Tham began his career as a structural engineer in New York, after graduating with a Bachelor of Science degree in Civil &amp; Environmental Engineering from Cornell University. From for-profit buildings, he moved to non-profit work, which included the construction of school and church buildings. 
“I was picking up different skills every day,” recalled Tham, who also holds a Masters in Business Administration from Singapore Management University. 
“In one of the volunteer projects to build a school in upstate New York, we ended up doing most of the construction work ourselves – driving forklifts and operating small excavators. That was one of the most satisfying projects I was involved in.” 
His next stop – Bain &amp; Company. In his role as management consultant, Tham worked with multinational companies in Asia Pacific on a wide range of functions, including financial performance management and growth strategies. There, he experienced a steep learning curve. 
“Management consulting teaches you to learn continuously. You’re working on new projects, reading research reports, and asking questions all the time. You have to work hard to pick up knowledge on new industries and markets constantly,” he added. 
“And the fastest way to learn is to tap on the expertise and experience of others. The advantage is immediate – you gain wisdom from someone else’s experience and learning, which you can then apply to your own life and work.” 
In 2014, Tham joined Keppel Corporation’s Group Strategy &amp; Development unit, where he played a key role in the formation of Keppel Capital, eventually becoming Keppel Capital’s Chief Financial Officer. The 38-year-old was appointed Deputy Chief Executive Officer of the manager of Keppel REIT in 2018, and assumed his current appointment as CEO a year later. Portfolio Optimisation 
Keppel REIT listed on SGX in April 2006. It is one of Asia’s leading REITs with a portfolio of premium Grade A commercial assets in prime business and financial districts across the region. It has the objective of generating stable income and long-term growth for unitholders by owning and investing in a portfolio of quality income-producing commercial real estate and real estate-related assets in Singapore and pan-Asia. 
The REIT has assets under management of approximately S$8 billion in Singapore, the key Australian cities of Sydney, Melbourne, Brisbane and Perth, as well as Seoul in South Korea. 
Keppel REIT is sponsored by Keppel Land Ltd, and managed by Keppel REIT Management Ltd, a wholly owned subsidiary of Keppel Capital – Asia’s premier asset manager with a diversified, global portfolio in real estate, infrastructure and data centre properties. 
During his two years in Keppel REIT, Tham has implemented key strategies to put the REIT on a steady growth trajectory. 
The first is portfolio optimisation, which allows the REIT to achieve long-term sustainable returns for its unitholders. This includes capturing value through the divestment of lower yielding assets, which in turn increases the manager’s financial flexibility to fund growth through reinvestments, continue its unit buyback programme, distribute capital gains, or pare down debt. 
“Portfolio optimisation for us is really to improve income resilience and portfolio yield. Over the last two years, we’ve divested about S$1.1 billion worth of assets,” Tham said, pointing to the paring of a 20% stake in Ocean Financial Centre in December 2018, the purchase of Seoul’s T Tower in May 2019 – marking the REIT’s first foray into South Korea – and the sale of Bugis Junction Towers last November. 
“The focus is to enhance DPU, and if you look at our recent results, it seems to be working, with Keppel REIT seeing the first year-on-year increase in DPU in 2019 after five years of decline,” he noted, referring to distributions per unit, a metric closely watched by unitholders. 
For the year ended 31 December 2019, Keppel REIT’s DPU edged higher to 5.58 Singapore cents from 5.56 cents the previous year. Between 2013 and 2018, its DPU had registered year-on-year declines. 
The second prong of Tham’s strategy involves boosting the REIT’s capital efficiency by managing both debt and equity. In mid-2018, Keppel REIT became the first REIT in Singapore to run a DPU-accretive, unit buyback program. As at end-2019, the REIT had purchased and cancelled 95.3 million units. 
“We’ve seen the benefits in our first-half 2020 financial results, where distributable income was largely similar, but DPU rose due to a smaller unit base.” 
The REIT has also reduced its overall cost of debt. “We’ve restructured some of our loans, launched convertible bonds, all in an effort to push down borrowing cost,” he added. 
As at 30 June 2020, all the REIT’s 2020 loans have been refinanced. All-in interest rate was also lower at 2.48% per annum versus 2.86% for the same period last year, while aggregate leverage was 36.3%, with a weighted average term to maturity of 3.6 years. Interest cover stood at 3.5 times, with 79% of its borrowings pegged to fixed rates. Resilient and Stable 
Looking ahead, Keppel REIT will remain a Singapore-centric REIT, Tham said. About 80% of its assets under management (AUM) is in Singapore’s prime Central Business District (CBD). 
“There will be a shift over time as we raise our overseas exposure, such as in Australia and South Korea, but it will be marginal, for example, lifting it to 25%, or even 30%, from 20%.” 
And an overseas footprint has boosted resilience. “Investing in assets across Australia and South Korea enhances our ability to deliver sustainable returns over time through changing property cycles in these different markets,” he said. 
Australian leases, which tend to stretch five to 10 years versus Singapore’s three to five years, also provide added support. “These longer leases with annual rental escalations offer more stability, and increase the REIT’s ability to grow DPU, even if one market is experiencing a downcycle,” he added. 
Meanwhile, the coronavirus outbreak has created headwinds and offered meaningful lessons, Tham noted. 
“COVID-19 has been challenging for retail and hospitality assets, but for an office landlord like us with a small retail component, there’s been minimal impact,” he said. “Nonetheless, there’s a fair amount of uncertainty due to the global recession and rising geopolitical tensions, so our main focus is proactive engagement with our tenants.” 
At one end of the spectrum, technology-related tenants are still expanding, with their growth fuelled by digitalisation trends that accelerated in the wake of the pandemic. At the other end, hospitality and travel-related businesses are struggling. 
“From a leasing standpoint, we try to accommodate their requirements as much as possible – making sure additional space is available for those who need it, and being flexible on lease negotiations with others to retain tenants in our buildings.” 
As at 30 June 2020, Keppel REIT’s tenant support measures stood at an estimated S$12.5 million. These include the full pass-through of property tax rebates and cash grants from the Singapore government. It has also allowed S$1.6 million of rents to be deferred. 
Its portfolio performance remains bolstered by a high committed occupancy rate of 98.6%, as well as long weighted average lease expiry of about 4.6 years and 6.5 years for the overall portfolio and top 10 tenants respectively. For the first six months of 2020, the REIT had a tenant retention rate of 71%. Focus on Future-Proofing 
Looking ahead, future-proofing the REIT’s commercial spaces is key, Tham said. 
“We need to ensure our buildings have the best-in-class infrastructure, such as improving indoor air quality with advanced filtration systems, boosting standards of cleanliness, and using technology to reduce manpower requirements and human interactions,” he added. 
This can be seen from its robot – RoboGuard – that patrols the premises of Ocean Financial Centre to enforce safe-distancing measures. 
“We’re also harnessing technology and automation for other key areas, such as lifts, turnstiles and toilets, and exploring the use of contactless doors within our buildings.” 
Longer term, how tenants use their office space will also evolve, and Keppel REIT needs to stay ahead of such emerging trends, Tham said. 
“Physical offices will remain a necessity, although the form and functions of the office will evolve. Many firms will likely incorporate work-from-home protocols in their future planning. And employees and tenants will want more flexibility from their office space going forward,” he added. 
“Some companies may need less space, but many functions will still require space for social interaction, client engagements and collaborations, especially if you’re a customer-facing business or in the creative industry.” 
There may also be a reversal of densification. “Space for each employee may be increased to incorporate social distancing within an office layout, reversing the trend of higher density over the last two decades,” he added. 
The resulting impact on office demand, therefore, will likely be a measured one, as tenants re-assess their needs along with the terms of their existing leases, which are typically three to five years long. 
“It will become more important to have the ‘right’ office space. If companies reduce their footprint, they will be able to pay more for Grade A premium space, and demand top-notch infrastructure – buildings that are well-networked, well-located, with high hygiene standards,” Tham pointed out. 
In tandem with these considerations, the repositioning of assets has emerged, and will continue to gain momentum. “At the end of the day, owning the right assets will be instrumental to landlords surviving, and thriving,” he added. 
There’s also the potential for supply deferment, as ongoing new projects may be delayed by social distancing restrictions at construction sites. “If demand for commercial buildings moves down slightly, but at the same time, supply moves down as well, net-net, the sector could remain relatively stable over time.” 
Despite the evolving industry, Tham sleeps like a log. “Having three young kids at home means I can fall asleep in a heartbeat – nothing keeps me awake!” laughed the father of two boys and a girl, aged 10 months to nine years. 
“But seriously, to be able to stay worry-free, all the credit goes to my team – they’re doing a really great job,” he said. “Over the years, I have learnt more from them than they from me.” Keppel REIT 
Keppel REIT listed on SGX in April 2006. It is one of Asia’s leading REITs with a portfolio of premium Grade A commercial assets in prime business and financial districts pan‐Asia. Keppel REIT’s objective is to generate stable income and long‐term growth for unitholders by owning and investing in a portfolio of quality income‐producing commercial real estate and real estate‐related assets in Singapore and pan‐Asia. The REIT has assets under management of approximately S$8 billion in Singapore, key Australian cities of Sydney, Melbourne, Brisbane and Perth, as well as Seoul, South Korea. Keppel REIT is sponsored by Keppel Land Ltd, one of Asia's leading property companies. It is managed by Keppel REIT Management Ltd, a wholly owned subsidiary of Keppel Capital Holdings Pte Ltd. Keppel Capital is a premier asset manager in Asia with a diversified portfolio in real estate, infrastructure and data centre properties in key global markets.

 
The company website is: <a href="www.keppelreit.com">www.keppelreit.com</a>. 
Click <a href="https://www.sgx.com/securities/equities/K71U">here</a> for the company's StockFacts page. 
For the six months ended 30 June 2020 financial results, click <a href="https://links.sgx.com/FileOpen/Keppel%20REIT%202Q20%20Financial%20Results.ashx?App=Announcement&amp;FileID=624206">here</a>. 
 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations. 
For previous editions of kopi-C: the Company brew, please click <a href="http://edm.sgx.com/a/hBd-CspB86%24MfB90noBAABR54ZH/link10">here</a>.   
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to <a href="///C:/Users/tanje/Desktop/Working%20Files/kopi-C/jennifer.t@sgx.com">jennifer.t@sgx.com</a>.
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    KeppelREIT-CEO


As far back as he can remember, the twin touchstones of Paul Tham’s life have been wisdom and learning.  
Growing up, a familiar mantra was one expounded by the Book of Proverbs in the Bible – “Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding”.  
“My godfather taught me the importance of wisdom and understanding,” the CEO of the manager of SGX-listed Keppel REIT recalled. “Both are tied to two key skills – the willingness to learn, as well as the ability to learn continuously – and involve lots of hard work.”  
Driven by a passion to build and create, Tham began his career as a structural engineer in New York, after graduating with a Bachelor of Science degree in Civil &amp; Environmental Engineering from Cornell University. From for-profit buildings, he moved to non-profit work, which included the construction of school and church buildings.  
“I was picking up different skills every day,” recalled Tham, who also holds a Masters in Business Administration from Singapore Management University.  
“In one of the volunteer projects to build a school in upstate New York, we ended up doing most of the construction work ourselves – driving forklifts and operating small excavators. That was one of the most satisfying projects I was involved in.”  
His next stop – Bain &amp; Company. In his role as management consultant, Tham worked with multinational companies in Asia Pacific on a wide range of functions, including financial performance management and growth strategies. There, he experienced a steep learning curve.  
“Management consulting teaches you to learn continuously. You’re working on new projects, reading research reports, and asking questions all the time. You have to work hard to pick up knowledge on new industries and markets constantly,” he added.  
“And the fastest way to learn is to tap on the expertise and experience of others. The advantage is immediate – you gain wisdom from someone else’s experience and learning, which you can then apply to your own life and work.”  
In 2014, Tham joined Keppel Corporation’s Group Strategy &amp; Development unit, where he played a key role in the formation of Keppel Capital, eventually becoming Keppel Capital’s Chief Financial Officer. The 38-year-old was appointed Deputy Chief Executive Officer of the manager of Keppel REIT in 2018, and assumed his current appointment as CEO a year later.  Portfolio Optimisation  
Keppel REIT listed on SGX in April 2006. It is one of Asia’s leading REITs with a portfolio of premium Grade A commercial assets in prime business and financial districts across the region. It has the objective of generating stable income and long-term growth for unitholders by owning and investing in a portfolio of quality income-producing commercial real estate and real estate-related assets in Singapore and pan-Asia.  
The REIT has assets under management of approximately S$8 billion in Singapore, the key Australian cities of Sydney, Melbourne, Brisbane and Perth, as well as Seoul in South Korea.  
Keppel REIT is sponsored by Keppel Land Ltd, and managed by Keppel REIT Management Ltd, a wholly owned subsidiary of Keppel Capital – Asia’s premier asset manager with a diversified, global portfolio in real estate, infrastructure and data centre properties.  
During his two years in Keppel REIT, Tham has implemented key strategies to put the REIT on a steady growth trajectory.  
The first is portfolio optimisation, which allows the REIT to achieve long-term sustainable returns for its unitholders. This includes capturing value through the divestment of lower yielding assets, which in turn increases the manager’s financial flexibility to fund growth through reinvestments, continue its unit buyback programme, distribute capital gains, or pare down debt.  
“Portfolio optimisation for us is really to improve income resilience and portfolio yield. Over the last two years, we’ve divested about S$1.1 billion worth of assets,” Tham said, pointing to the paring of a 20% stake in Ocean Financial Centre in December 2018, the purchase of Seoul’s T Tower in May 2019 – marking the REIT’s first foray into South Korea – and the sale of Bugis Junction Towers last November.  
“The focus is to enhance DPU, and if you look at our recent results, it seems to be working, with Keppel REIT seeing the first year-on-year increase in DPU in 2019 after five years of decline,” he noted, referring to distributions per unit, a metric closely watched by unitholders.  
For the year ended 31 December 2019, Keppel REIT’s DPU edged higher to 5.58 Singapore cents from 5.56 cents the previous year. Between 2013 and 2018, its DPU had registered year-on-year declines.  
The second prong of Tham’s strategy involves boosting the REIT’s capital efficiency by managing both debt and equity. In mid-2018, Keppel REIT became the first REIT in Singapore to run a DPU-accretive, unit buyback program. As at end-2019, the REIT had purchased and cancelled 95.3 million units.  
“We’ve seen the benefits in our first-half 2020 financial results, where distributable income was largely similar, but DPU rose due to a smaller unit base.”  
The REIT has also reduced its overall cost of debt. “We’ve restructured some of our loans, launched convertible bonds, all in an effort to push down borrowing cost,” he added.  
As at 30 June 2020, all the REIT’s 2020 loans have been refinanced. All-in interest rate was also lower at 2.48% per annum versus 2.86% for the same period last year, while aggregate leverage was 36.3%, with a weighted average term to maturity of 3.6 years. Interest cover stood at 3.5 times, with 79% of its borrowings pegged to fixed rates.  Resilient and Stable  
Looking ahead, Keppel REIT will remain a Singapore-centric REIT, Tham said. About 80% of its assets under management (AUM) is in Singapore’s prime Central Business District (CBD).  
“There will be a shift over time as we raise our overseas exposure, such as in Australia and South Korea, but it will be marginal, for example, lifting it to 25%, or even 30%, from 20%.”  
And an overseas footprint has boosted resilience. “Investing in assets across Australia and South Korea enhances our ability to deliver sustainable returns over time through changing property cycles in these different markets,” he said.  
Australian leases, which tend to stretch five to 10 years versus Singapore’s three to five years, also provide added support. “These longer leases with annual rental escalations offer more stability, and increase the REIT’s ability to grow DPU, even if one market is experiencing a downcycle,” he added.  
Meanwhile, the coronavirus outbreak has created headwinds and offered meaningful lessons, Tham noted.  
“COVID-19 has been challenging for retail and hospitality assets, but for an office landlord like us with a small retail component, there’s been minimal impact,” he said. “Nonetheless, there’s a fair amount of uncertainty due to the global recession and rising geopolitical tensions, so our main focus is proactive engagement with our tenants.”  
At one end of the spectrum, technology-related tenants are still expanding, with their growth fuelled by digitalisation trends that accelerated in the wake of the pandemic. At the other end, hospitality and travel-related businesses are struggling.  
“From a leasing standpoint, we try to accommodate their requirements as much as possible – making sure additional space is available for those who need it, and being flexible on lease negotiations with others to retain tenants in our buildings.”  
As at 30 June 2020, Keppel REIT’s tenant support measures stood at an estimated S$12.5 million. These include the full pass-through of property tax rebates and cash grants from the Singapore government. It has also allowed S$1.6 million of rents to be deferred.  
Its portfolio performance remains bolstered by a high committed occupancy rate of 98.6%, as well as long weighted average lease expiry of about 4.6 years and 6.5 years for the overall portfolio and top 10 tenants respectively. For the first six months of 2020, the REIT had a tenant retention rate of 71%.  Focus on Future-Proofing   
Looking ahead, future-proofing the REIT’s commercial spaces is key, Tham said.  
“We need to ensure our buildings have the best-in-class infrastructure, such as improving indoor air quality with advanced filtration systems, boosting standards of cleanliness, and using technology to reduce manpower requirements and human interactions,” he added.  
This can be seen from its robot – RoboGuard – that patrols the premises of Ocean Financial Centre to enforce safe-distancing measures.  
“We’re also harnessing technology and automation for other key areas, such as lifts, turnstiles and toilets, and exploring the use of contactless doors within our buildings.”  
Longer term, how tenants use their office space will also evolve, and Keppel REIT needs to stay ahead of such emerging trends, Tham said.  
“Physical offices will remain a necessity, although the form and functions of the office will evolve. Many firms will likely incorporate work-from-home protocols in their future planning. And employees and tenants will want more flexibility from their office space going forward,” he added.  
“Some companies may need less space, but many functions will still require space for social interaction, client engagements and collaborations, especially if you’re a customer-facing business or in the creative industry.”  
There may also be a reversal of densification. “Space for each employee may be increased to incorporate social distancing within an office layout, reversing the trend of higher density over the last two decades,” he added.  
The resulting impact on office demand, therefore, will likely be a measured one, as tenants re-assess their needs along with the terms of their existing leases, which are typically three to five years long.  
“It will become more important to have the ‘right’ office space. If companies reduce their footprint, they will be able to pay more for Grade A premium space, and demand top-notch infrastructure – buildings that are well-networked, well-located, with high hygiene standards,” Tham pointed out.  
In tandem with these considerations, the repositioning of assets has emerged, and will continue to gain momentum. “At the end of the day, owning the right assets will be instrumental to landlords surviving, and thriving,” he added.  
There’s also the potential for supply deferment, as ongoing new projects may be delayed by social distancing restrictions at construction sites. “If demand for commercial buildings moves down slightly, but at the same time, supply moves down as well, net-net, the sector could remain relatively stable over time.”  
Despite the evolving industry, Tham sleeps like a log. “Having three young kids at home means I can fall asleep in a heartbeat – nothing keeps me awake!” laughed the father of two boys and a girl, aged 10 months to nine years.  
“But seriously, to be able to stay worry-free, all the credit goes to my team – they’re doing a really great job,” he said. “Over the years, I have learnt more from them than they from me.”   Keppel REIT  
Keppel REIT listed on SGX in April 2006. It is one of Asia’s leading REITs with a portfolio of premium Grade A commercial assets in prime business and financial districts pan‐Asia. Keppel REIT’s objective is to generate stable income and long‐term growth for unitholders by owning and investing in a portfolio of quality income‐producing commercial real estate and real estate‐related assets in Singapore and pan‐Asia. The REIT has assets under management of approximately S$8 billion in Singapore, key Australian cities of Sydney, Melbourne, Brisbane and Perth, as well as Seoul, South Korea. Keppel REIT is sponsored by Keppel Land Ltd, one of Asia's leading property companies. It is managed by Keppel REIT Management Ltd, a wholly owned subsidiary of Keppel Capital Holdings Pte Ltd. Keppel Capital is a premier asset manager in Asia with a diversified portfolio in real estate, infrastructure and data centre properties in key global markets.

 
The company website is: www.keppelreit.com.  
Click here for the company's StockFacts page.  
For the six months ended 30 June 2020 financial results, click here.  
 

About kopi-C: the Company brew

Text: Jennifer LH Tan Photo: Company file  kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.  
For previous editions of kopi-C: the Company brew, please click here.    
For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to jennifer.t@sgx.com.



Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

After nearly 10 months of work across many jurisdictions (and probably a dozen insights by yours truly in that period), Temasek has decided to walk away from the deal.
Today - a national holiday in Singapore - saw the <a href="https://links.sgx.com/FileOpen/200810%20KIH%20SGX%20Announcement%20MAC%20invoked.ashx?App=Announcement&amp;FileID=626918" target="_blank" rel="noopener">announcement</a> (SGX link) that Temasek would not proceed with the Partial Offer as the MAC Pre-Condition of no material adverse change (MAC) in the Group's financial performance occur over the 12 months to the latest financial statements as of the time when the deal might go forward (and because the long stop appears to be before the next quarter's earnings will be released, that means the Q2 earnings to 30 June 2020 were going to be the defining data set. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/693/original/Screenshot%202020-08-10%20at%205.00.02%20PM.png?1597050277" class="editor-image img-responsive" data-smartkarma-image-id="151693"></figure>
<hr>
After a week of no news on this, I had expected that the national holiday long weekend would have either seen such an announcement before the weekend, or it might wait on the <a href="https://www.smartkarma.com/entities/sembcorp-marine-ltd" target="_blank" data-smartkarma-citation="entities:11:1" rel="noopener">Sembcorp Marine (SMM SP)</a> shareholder vote, if there was a non-explicit condition to their eventual decision to do the deal. 
Over the weekend in <a href="https://www.smartkarma.com/insights/what-triggers-a-temasek-decision-on-keppel" target="_blank" data-smartkarma-citation="insights:41976" rel="noopener">What Triggers a Temasek Decision on Keppel?</a> I argued that on balance, when people came in to trade on Tuesday, I'd be a better buyer than seller - for the first time in months - because the upside to downside ratio was pretty good.
If I'd only waited a day I would have less egg on my face but for the moment, I have been "lucky" that markets haven't opened and people have not been able to trade on that change in recommendation. 
The question now is where should Keppel shares trade when uncontaminated by the possibility of being able to sell a portion at a higher price?
The obvious answer is "Probably lower." But there is nuance in there. And a bunch of that nuance has to do with the fact that Sembcorp Marine has fallen more than 50% in just over 2 months because of the announcement of its intention to do a Rights Offering recapitalisation and spinout (see <a href="https://www.smartkarma.com/insights/sembcorp-restructuring-details-timing-announced-the-arithmetic-is-compelling" target="_blank" rel="noopener">here</a> for more on that story) which would deliver a bunch of SMM shares to people who might not necessarily want them. 
As always, more below the fold.
<hr>
<h3>Side Notes:</h3>
Some of the insights which accompany this situation are noted below. 
<div>
After a disastrous Q1, Sembcorp Industries (SCI) and Sembcorp Marine (SMM) proposed a recapitalization/de-merger, as discussed in the insights listed below: 1. <a href="https://www.smartkarma.com/insights/sembcorp-marine-and-sci-a-gloriously-messy-recap-and-de-merger-big-win-for-sci" target="_blank" data-smartkarma-citation="insights:40153" rel="noopener">SembCorp Marine and SCI - A Gloriously Messy Recap and De-Merger - Big Win for SCI</a>  2. <a href="https://www.smartkarma.com/insights/sembcorp-marine-rights-offer-cast-away" target="_blank" data-smartkarma-citation="insights:40164" rel="noopener">Sembcorp Marine Rights Offer - Cast Away</a>  3. <a href="https://www.smartkarma.com/insights/thinking-about-sembcorp-industries-future-be-bigly-bullish" target="_blank" data-smartkarma-citation="insights:40809" rel="noopener">Thinking About Sembcorp Industries' Future - Be Bigly Bullish</a> 4. <a href="https://www.smartkarma.com/insights/sembcorp-restructuring-details-timing-announced-the-arithmetic-is-compelling" target="_blank" data-smartkarma-citation="insights:41504" rel="noopener">Sembcorp Restructuring Details &amp; Timing Announced - The Arithmetic Is Compelling</a> 
</div>
<div>
The EGMs for both SCI and SMM are scheduled for 11 August. That's "today" if you are reading this on Tuesday when you get back (or Monday in Europe or the US).
<table class="table table-striped">
<tbody>
<tr>
<td colspan="3" style="width: 724px;">
<h3>Past Insights on the Temasek Deal for Keppel</h3>
</td>
</tr>
<tr>
<td style="width: 100.8px;">Date</td>
<td style="width: 102.4px;">Insight Type</td>
<td style="width: 479.2px;">Title</td>
</tr>
<tr>
<td style="width: 100.8px;">2019</td>
<td style="width: 102.4px;">General</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/quiddity-singapore-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:28849" rel="noopener">Quiddity Singapore M&amp;A Guide 2019</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">21 Oct 2019</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/big-temasek-partial-offer-for-keppel" target="_blank" data-smartkarma-citation="insights:33305" rel="noopener">BIG Temasek Partial Offer for Keppel</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">29 Oct 2019</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/gauging-foreign-investment-review-risk-for-temasek-takeover-of-keppel" target="_blank" data-smartkarma-citation="insights:33908" rel="noopener">Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">27 Nov 2019</td>
<td style="width: 102.4px;">General</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/the-dummies-guide-to-partial-offers-tenders" target="_blank" data-smartkarma-citation="insights:34719" rel="noopener">The Dummies' Guide to Partial Offers/Tenders</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">15 Dec 2019</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-trading-cheap-to-its-comp-basket" target="_blank" data-smartkarma-citation="insights:35267" rel="noopener">Keppel Corp - Trading Cheap To Its Comp Basket</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">2 Feb  2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-partial-offer-countdown-still-cheap" target="_blank" data-smartkarma-citation="insights:36272" rel="noopener">Keppel Corp Partial Offer Countdown - Still Cheap</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">28 Feb 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-update-still-trading-cheap" target="_blank" data-smartkarma-citation="insights:36946" rel="noopener">Keppel Corp Update - STILL Trading Cheap</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">16 Mar 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-implied-likelihood-of-temasek-walking-away-or-dealbreak" target="_blank" data-smartkarma-citation="insights:37493" rel="noopener">Keppel - Implied Likelihood of Temasek Walking Away or Dealbreak</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">20 Mar 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-update-implied-likelihood-up-as-market-falls-meaning" target="_blank" data-smartkarma-citation="insights:37630" rel="noopener">Keppel Corp Update - Implied Likelihood Up As Market Falls, Meaning...</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">20 Mar 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-arb-grids-updated-20-march" target="_blank" data-smartkarma-citation="insights:37654" rel="noopener">Keppel Corp Arb Grids - Updated 20 March</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">30 April 2020 </td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-partial-tender-update-odds-less-in-your-favor-now-than-before" target="_blank" data-smartkarma-citation="insights:38878" rel="noopener">Keppel Corp Partial Tender Update - Odds Less In Your Favor Now Than Before</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">4 May 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-two-ways-to-tender" target="_blank" data-smartkarma-citation="insights:39010" rel="noopener">Keppel Corp - Two Ways To Tender</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">15 June 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-corp-stretched-vs-proxy-baskets-and-now-with-new-risk" target="_blank" data-smartkarma-citation="insights:40339" rel="noopener">Keppel Corp - Stretched Vs Proxy Baskets And Now With New Risk</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">26 July 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/keppel-material-impairments-may-mean-a-mac-mess" target="_blank" data-smartkarma-citation="insights:41533" rel="noopener">Keppel "Material Impairments" May Mean A MAC Mess</a> </td>
</tr>
<tr>
<td style="width: 100.8px;">2 Aug 2020</td>
<td style="width: 102.4px;">Deal-Specific</td>
<td style="width: 479.2px;"><a href="https://www.smartkarma.com/insights/it-s-a-macastrophe-keppel-surprises-bigly-and-badly-in-o-m" target="_blank" data-smartkarma-citation="insights:41726" rel="noopener">It's a MACastrophe!!! Keppel Surprises Bigly and Badly in O&amp;M</a> </td>
</tr>
</tbody>
</table>
</div>

After nearly 10 months of work across many jurisdictions (and probably a dozen insights by yours truly in that period), Temasek has decided to walk away from the deal.
Today - a national holiday in Singapore - saw the announcement (SGX link) that Temasek would not proceed with the Partial Offer as the MAC Pre-Condition of no material adverse change (MAC) in the Group's financial performance occur over the 12 months to the latest financial statements as of the time when the deal might go forward (and because the long stop appears to be before the next quarter's earnings will be released, that means the Q2 earnings to 30 June 2020 were going to be the defining data set. 


After a week of no news on this, I had expected that the national holiday long weekend would have either seen such an announcement before the weekend, or it might wait on the Sembcorp Marine (SMM SP) shareholder vote, if there was a non-explicit condition to their eventual decision to do the deal. 
Over the weekend in What Triggers a Temasek Decision on Keppel? I argued that on balance, when people came in to trade on Tuesday, I'd be a better buyer than seller - for the first time in months - because the upside to downside ratio was pretty good.
If I'd only waited a day I would have less egg on my face but for the moment, I have been "lucky" that markets haven't opened and people have not been able to trade on that change in recommendation. 
The question now is where should Keppel shares trade when uncontaminated by the possibility of being able to sell a portion at a higher price?
The obvious answer is "Probably lower." But there is nuance in there. And a bunch of that nuance has to do with the fact that Sembcorp Marine has fallen more than 50% in just over 2 months because of the announcement of its intention to do a Rights Offering recapitalisation and spinout (see here for more on that story) which would deliver a bunch of SMM shares to people who might not necessarily want them. 
As always, more below the fold.

Side Notes:
Some of the insights which accompany this situation are noted below. 

After a disastrous Q1, Sembcorp Industries (SCI) and Sembcorp Marine (SMM) proposed a recapitalization/de-merger, as discussed in the insights listed below: 1. SembCorp Marine and SCI - A Gloriously Messy Recap and De-Merger - Big Win for SCI  2. Sembcorp Marine Rights Offer - Cast Away  3. Thinking About Sembcorp Industries' Future - Be Bigly Bullish 4. Sembcorp Restructuring Details &amp; Timing Announced - The Arithmetic Is Compelling 


The EGMs for both SCI and SMM are scheduled for 11 August. That's "today" if you are reading this on Tuesday when you get back (or Monday in Europe or the US).




Past Insights on the Temasek Deal for Keppel



Date
Insight Type
Title


2019
General
Quiddity Singapore M&amp;A Guide 2019 


21 Oct 2019
Deal-Specific
BIG Temasek Partial Offer for Keppel 


29 Oct 2019
Deal-Specific
Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel 


27 Nov 2019
General
The Dummies' Guide to Partial Offers/Tenders 


15 Dec 2019
Deal-Specific
Keppel Corp - Trading Cheap To Its Comp Basket 


2 Feb  2020
Deal-Specific
Keppel Corp Partial Offer Countdown - Still Cheap 


28 Feb 2020
Deal-Specific
Keppel Corp Update - STILL Trading Cheap 


16 Mar 2020
Deal-Specific
Keppel - Implied Likelihood of Temasek Walking Away or Dealbreak 


20 Mar 2020
Deal-Specific
Keppel Corp Update - Implied Likelihood Up As Market Falls, Meaning... 


20 Mar 2020
Deal-Specific
Keppel Corp Arb Grids - Updated 20 March 


30 April 2020 
Deal-Specific
Keppel Corp Partial Tender Update - Odds Less In Your Favor Now Than Before 


4 May 2020
Deal-Specific
Keppel Corp - Two Ways To Tender 


15 June 2020
Deal-Specific
Keppel Corp - Stretched Vs Proxy Baskets And Now With New Risk 


26 July 2020
Deal-Specific
Keppel "Material Impairments" May Mean A MAC Mess 


2 Aug 2020
Deal-Specific
It's a MACastrophe!!! Keppel Surprises Bigly and Badly in O&amp;M 





....The Proxy Baskets Are In Free Fall.Since I wrote just four days ago, the market-implied likelihood that <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp Ltd (KEP SP)</a> suitor Temasek does NOT complete the Partial Offer announced last year (when the stock was not quite 20% higher than here (S$5.84 then vs $4.93 now)) has fallen from 95% across an average of four proxy baskets to 58% now (i.e. the likelihood of the Tender Offer going through has gone from 5% to 42%. As of 13 March 2020's closing prices, the proxy basket showing the most likely implied tender was the O&amp;M-Heavy Proxy Basket at 22%. That likelihood is now 59%, with Property-Heavy showing a 62% likelihood of the Partial Offer going through. These likelihoods are based on measuring the back end at 100% participation against "fair" value against the back end of the trade assuming 100% of Keppel shareholders decide to participate. Correlations remain relatively robust but the beta overwhelms everything else this week.For more on process, evolution, and a whole bunch of really cool charts, see below.

....The Proxy Baskets Are In Free Fall.Since I wrote just four days ago, the market-implied likelihood that Keppel Corp Ltd (KEP SP) suitor Temasek does NOT complete the Partial Offer announced last year (when the stock was not quite 20% higher than here (S$5.84 then vs $4.93 now)) has fallen from 95% across an average of four proxy baskets to 58% now (i.e. the likelihood of the Tender Offer going through has gone from 5% to 42%. As of 13 March 2020's closing prices, the proxy basket showing the most likely implied tender was the O&amp;M-Heavy Proxy Basket at 22%. That likelihood is now 59%, with Property-Heavy showing a 62% likelihood of the Partial Offer going through. These likelihoods are based on measuring the back end at 100% participation against "fair" value against the back end of the trade assuming 100% of Keppel shareholders decide to participate. Correlations remain relatively robust but the beta overwhelms everything else this week.For more on process, evolution, and a whole bunch of really cool charts, see below.

Keppel Corp Update - Implied Likelihood Up As Market Falls, Meaning...

<div>Just over three months ago, Temasek announced its intention to conduct a Partial Offer to bring its stake in <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp Ltd (KEP SP)</a> from just over 20% to just over 50%. </div><div><ul>
<li>The Offer, its details, and valuation was discussed in <a href="https://www.smartkarma.com/insights/big-temasek-partial-offer-for-keppel" target="_blank" data-smartkarma-citation="insights:33305" rel="noopener">BIG Temasek Partial Offer for Keppel</a>. </li>
<li>Because Keppel has overseas businesses, and Temasek is a sovereign fund, there are foreign investment review approvals and anti-trust approvals sought from a variety of places. Because Temasek has a controlling stake in <a href="https://www.smartkarma.com/entities/singapore-telecommunications-limited" target="_blank" data-smartkarma-citation="entities:20:1" rel="noopener">Singtel (ST SP)</a> and Keppel has an indirect stake in M1, there are domestic telecom approvals, and because of a change in control. This was reviewed in <a href="https://www.smartkarma.com/insights/gauging-foreign-investment-review-risk-for-temasek-takeover-of-keppel" target="_blank" data-smartkarma-citation="insights:33908" rel="noopener">Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel</a>. The approval with the longest time frame may be the IMDA approval in Singapore.</li>
<li>Partial Offers are strange beasts. Many arbitrageurs avoid them because they have "back end" risk (i.e. investment risk on a residual position).  Many more traditional investors don't like them because they are complicated. That means there is something for everyone, and understanding how to deal with them best means fundamental investors can avail themselves of interesting opportunities. This was discussed in <a href="https://www.smartkarma.com/insights/the-dummies-guide-to-partial-offers-tenders" target="_blank" data-smartkarma-citation="insights:34719" rel="noopener">The Dummies' Guide to Partial Offers/Tenders</a> which used the Keppel Corp situation as a guide.</li>
<li>The Keppel situation is interesting as an exercise in benchmarking because on an asset basis or revenue basis, the company is a conglomerate with significant Offshore &amp; Marine presence. However, in terms of the company's earnings profile now and over the next couple of years, it is decidedly less O&amp;M and more property and infrastructure.</li>
<li>Because of the divergence of those two major comp baskets, the fact that markets are trading a little wonky because of the nCoV2019 anyway, and the fact that people don't think about the embedded details and assumptions within Partial Offers as much as they should...</li>
</ul></div><div>...There is opportunity now.</div>

Just over three months ago, Temasek announced its intention to conduct a Partial Offer to bring its stake in Keppel Corp Ltd (KEP SP) from just over 20% to just over 50%. 
The Offer, its details, and valuation was discussed in BIG Temasek Partial Offer for Keppel. 
Because Keppel has overseas businesses, and Temasek is a sovereign fund, there are foreign investment review approvals and anti-trust approvals sought from a variety of places. Because Temasek has a controlling stake in Singtel (ST SP) and Keppel has an indirect stake in M1, there are domestic telecom approvals, and because of a change in control. This was reviewed in Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel. The approval with the longest time frame may be the IMDA approval in Singapore.
Partial Offers are strange beasts. Many arbitrageurs avoid them because they have "back end" risk (i.e. investment risk on a residual position).  Many more traditional investors don't like them because they are complicated. That means there is something for everyone, and understanding how to deal with them best means fundamental investors can avail themselves of interesting opportunities. This was discussed in The Dummies' Guide to Partial Offers/Tenders which used the Keppel Corp situation as a guide.
The Keppel situation is interesting as an exercise in benchmarking because on an asset basis or revenue basis, the company is a conglomerate with significant Offshore &amp; Marine presence. However, in terms of the company's earnings profile now and over the next couple of years, it is decidedly less O&amp;M and more property and infrastructure.
Because of the divergence of those two major comp baskets, the fact that markets are trading a little wonky because of the nCoV2019 anyway, and the fact that people don't think about the embedded details and assumptions within Partial Offers as much as they should...
...There is opportunity now.

Keppel Corp Partial Offer Countdown - Still Cheap

David Blennerhassett

This week I briefly look at recent (&amp; ongoing) bifurcations in <a href="https://www.smartkarma.com/entities/8517" target="_blank" data-smartkarma-citation="entities:8517:1">United Co Rusal Plc (486 HK)</a>; <a href="https://www.smartkarma.com/entities/873" target="_blank" data-smartkarma-citation="entities:873:1">PCCW Ltd (8 HK)</a>; <a href="https://www.smartkarma.com/entities/8122" target="_blank" data-smartkarma-citation="entities:8122:1">Kingboard Chemical Holdings (148 HK)</a>, <a href="https://www.smartkarma.com/entities/15778" target="_blank" data-smartkarma-citation="entities:15778:1">Pasona Group Inc (2168 JP)</a> and <a href="https://www.smartkarma.com/entities/52" target="_blank" data-smartkarma-citation="entities:52:1">Wheelock &amp; Co Ltd (20 HK)</a>.These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed as a % - of at least 20%.A detailed NAV for a number of these parent/holding relationships highlighted can be found in our holdco monitor.

This week I briefly look at recent (&amp; ongoing) bifurcations in United Co Rusal Plc (486 HK); PCCW Ltd (8 HK); Kingboard Chemical Holdings (148 HK), Pasona Group Inc (2168 JP) and Wheelock &amp; Co Ltd (20 HK).These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed as a % - of at least 20%.A detailed NAV for a number of these parent/holding relationships highlighted can be found in our holdco monitor.

StubWorld - Set-Up/​​Unwind Extremes: Rusal, PCCW, Kingboard

Singapore

Keppel Land Limited provides real estate services. The Company offers acquisition, investment, development of office properties. Keppel Land serves customers in Asia.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Keppel Land Ltd (KPLD SP)

Keppel REIT Repositions for the Future

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Singapore Exchange Ltd (SGX)

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Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Keppel REIT Repositions for the Future

As far back as he can remember, the twin touchstones of Paul Tham’s life have been wisdom and learning. Growing up, a familiar...

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Travis Lundy

Keppel Corp Partial Offer Countdown - Still Cheap

Just over three months ago, Temasek announced its intention to conduct a Partial Offer to bring its stake in Keppel Corp Ltd (KEP SP) from just...

Travis Lundy

StubWorld - Set-Up/​​Unwind Extremes: Rusal, PCCW, Kingboard

This week I briefly look at recent (& ongoing) bifurcations in United Co Rusal Plc (486 HK); PCCW Ltd (8 HK); Kingboard Chemical Holdings (148...

David Blennerhassett

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