REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. In this issue, we follow up on the first China outlet mall REIT listed in Singapore, Sasseur Real Estate Investment (SASSR SP) , whose share price is down 7.5% from its IPO price of S$0.80 since its debut on 28 March 2018. Its distributable income exceeded its IPO forecast for FY2018. Annualized distribution per unit (DPU) yield for FY2018 was 9.1% based on current price. Moving forward, FY2019 DPU projection is S$0.06, translating into a DPU yield of 8.1% compared to FY2018. It is likely that the DPU for the projection years are conservative and the REIT manager will endeavour to beat the IPO forecast for FY2019 and even the annualized DPU for FY2018.
Sasseur REIT’s business model differs from other typical retail malls which lease out assets and receive rental income based on an agreed rental rate. Instead, it has structured a complex form of master lease, called the Entrusted Management Agreement (EMA), where it received a percentage of tenants’ sales turnover as the rental. As such, income generated its portfolio of properties are mainly sales-driven and hence may be unstable.
Essentially, the EMA encompasses a set of obligations that binds the sponsor to a two-year income support to Sasseur REIT in exchange for a long-term master lease which limits DPU upside. This is because a large chunk of the portfolio’s potential revenue growth will go to the sponsor.
We are not saying this is all bad; the master lease under the EMA provides income stability to the REIT given that gross revenue is sales-driven. Rather, we acknowledge the resilience of the outlet mall business model as seen from the long and successful track record of Tanger Factory Outlet Centers Inc (SKT US) in the United States and strong growth of Bailian Group’s outlet business in China. What is striking is China’s small outlet market size relatively to the mature regions despite the sheer size of its growing middle to upper-middle class population. This suggests that China’s outlet industry could grow significantly.
At 29% gearing ratio, Sasseur REIT has additional debt headroom of S$283mn to tap on its right-of-first-refusal (ROFR) pipeline of assets to grow its S$1.5bn initial portfolio. Even without inorganic growth, two of its properties, representing 43% of total portfolio valuation, are relatively new assets in their third year of operation, suggesting strong potential for growth. Sasseur REIT looks promising based its results in the last three quarters. Sasseur REIT’s premium P/NAV of 1.03x at the point of listing was surprisingly expensive given that its properties are non-prime outlet malls in China’s Tier-Two cities. P/NAV has since fallen to an attractive 0.8x.
This week’s offering of Insights across ASEAN@Smartkarmais filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week’s highlights include an update from CrossASEAN Insight Provider Kevin O’Rourke on the running order ahead of the upcoming Indonesian Election on 17th April. In the Equity-Bottom-up section, Angus Mackintosh circles back Pt Matahari Department Store (LPPF IJ) post its underwhelming results and we have a number on contrasting views on e-commerce player Sea Ltd (SE US) post the announcement of its recent placement, which was bigger than its IPO from Johannes Salim, CFA, Arun George, and Rickin Thakrar.
Gross capital flows lead World shipping activity by 4 months
Capital flows have been slowly rising since June 2018: in February they jumped
Reinforces out pro-Asia and pro-China investment message
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. In this issue, we follow up on the first China outlet mall REIT listed in Singapore, Sasseur Real Estate Investment (SASSR SP) , whose share price is down 7.5% from its IPO price of S$0.80 since its debut on 28 March 2018. Its distributable income exceeded its IPO forecast for FY2018. Annualized distribution per unit (DPU) yield for FY2018 was 9.1% based on current price. Moving forward, FY2019 DPU projection is S$0.06, translating into a DPU yield of 8.1% compared to FY2018. It is likely that the DPU for the projection years are conservative and the REIT manager will endeavour to beat the IPO forecast for FY2019 and even the annualized DPU for FY2018.
Sasseur REIT’s business model differs from other typical retail malls which lease out assets and receive rental income based on an agreed rental rate. Instead, it has structured a complex form of master lease, called the Entrusted Management Agreement (EMA), where it received a percentage of tenants’ sales turnover as the rental. As such, income generated its portfolio of properties are mainly sales-driven and hence may be unstable.
Essentially, the EMA encompasses a set of obligations that binds the sponsor to a two-year income support to Sasseur REIT in exchange for a long-term master lease which limits DPU upside. This is because a large chunk of the portfolio’s potential revenue growth will go to the sponsor.
We are not saying this is all bad; the master lease under the EMA provides income stability to the REIT given that gross revenue is sales-driven. Rather, we acknowledge the resilience of the outlet mall business model as seen from the long and successful track record of Tanger Factory Outlet Centers Inc (SKT US) in the United States and strong growth of Bailian Group’s outlet business in China. What is striking is China’s small outlet market size relatively to the mature regions despite the sheer size of its growing middle to upper-middle class population. This suggests that China’s outlet industry could grow significantly.
At 29% gearing ratio, Sasseur REIT has additional debt headroom of S$283mn to tap on its right-of-first-refusal (ROFR) pipeline of assets to grow its S$1.5bn initial portfolio. Even without inorganic growth, two of its properties, representing 43% of total portfolio valuation, are relatively new assets in their third year of operation, suggesting strong potential for growth. Sasseur REIT looks promising based its results in the last three quarters. Sasseur REIT’s premium P/NAV of 1.03x at the point of listing was surprisingly expensive given that its properties are non-prime outlet malls in China’s Tier-Two cities. P/NAV has since fallen to an attractive 0.8x.
This week’s offering of Insights across ASEAN@Smartkarmais filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week’s highlights include an update from CrossASEAN Insight Provider Kevin O’Rourke on the running order ahead of the upcoming Indonesian Election on 17th April. In the Equity-Bottom-up section, Angus Mackintosh circles back Pt Matahari Department Store (LPPF IJ) post its underwhelming results and we have a number on contrasting views on e-commerce player Sea Ltd (SE US) post the announcement of its recent placement, which was bigger than its IPO from Johannes Salim, CFA, Arun George, and Rickin Thakrar.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
This week’s offering of Insights across ASEAN@Smartkarmais filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
In the sixth company visit Insight in an ongoing series, Indonesia Property – In Search of the End of the Rainbow – Part 6 – Intiland Development (DILD IJ), CrossASEAN Insight Provider Jessica Irene takes a deep dive into this high-rise and office focused developer. The company is a property developer that focuses on landed residential, industrial estates, high-end condominiums, and offices in Jakarta and Surabaya. DILD has a good track record in building and operating high-end condominiums and offices.
After a WSJ article on Sunday suggesting as much, Monday morning 8 April 2018 saw the announcement of a Proposed Merger between OUE Commercial Real Estate Investment Tr (OUECT SP) and OUE Hospitality Trust (OUEHT SP) whereby OUEHT unitholders would receive a combination of cash and OUECT shares (S$0.04075 + 1.3853 shares of OUECT) for every share of OUEHT held. Investors in each would receive any “permitted distributions” (dividends, etc) declared by the respective managers in respect of the period from 1 Jan 2019 up to the day immediately before the date on which Trust Scheme becomes effective.
This would create a REIT with S$6.8bn of assets, a pro-forma market cap of ~S$2.9bn, and a free-float of S$1.1bn (up by 57%). OUE Group would continue to own 48.3% of the total.
The benefits to investors would be increased scale (2.2mm square feet of commercial net lettable area, + 1,640 hotel rooms), more borrowing capacity, increased diversification as asset concentration would be lowered, and because the scope of NewREIT would be broader, it would allow REIT managers more flexibility. The above-mentioned points are advertised as being the fodder for a re-rating. The idea of possible index inclusion is mooted as well.
The OUECT presentation says that the merger is “DPU accretive to unitholders” (+2.1% on a 2018 pro-forma basis) while the OUEHT presentation says that the merger is “value accretive to stapled securityholders” (+18.7% NAV uplift per stapled security).
Details of how this all works below.
Separately, two other Singapore deals announced at the end of last week include:
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
In the seventh company in ongoing Smartkarma Originals series on the property space in Indonesia, we now look at Indonesia’s oldest Industrial Estate developer and operator Kawasan Industri Jababeka (KIJA IJ). The company’s largest and the original estate is in Cikarang to the East of Jakarta and comprises 1,239 hectares of industrial land bank and a masterplan of 5,600 ha.
The company has also expanded its presence to Kendal, close to Semarang in Central Java, where it has a joint venture with Singapore listed company Sembcorp Industries (SCI SP). This estate covers a total area of 2,700 ha to be developed in three phases over a period of 25 years and is focused on manufacturing in industries.
The company also has successfully installed a 140 MW gas-fired power station at its Cikarang, providing a recurrent stream utility-type earnings, which cushion against the volatility in its industrial estate and property earnings. After some issues with one of its boilers (non-recurrent) and issues early last year with PLN, this asset now looks set to provide a stable earnings stream for the company.
KIJA has also built a dry-port at Cikarang estate which has been increasing throughput by around +25% every year, providing its customers with the facility for customs clearance at a faster pace of that at the Tanjong Priok port, as well as logistics support.
After two difficult years where the company has been hit by a combination of problems at its power plant, foreign exchange write-downs, and slower demand for industrial plots, the company now looks set to see a strong recovery in earnings in 2019 and beyond.
The company has seen coverage from equity analysts dwindle, which means there are no consensus estimates but it looks attractive from both a PBV and an NAV basis trading on 0.85x FY19E PBV and at a 73% discount to NAV. If the company were to trade back to its historical mean from a PBV and PER point of view, this would imply an upside of 33% to IDR325, using a blend of the two measures. An absence of one-off charges in 2019 and a pick up in industrial sales should mean a significant recovery in earnings, putting the company on an FY19E PER multiple of 9.7x, which is by no means expensive given its strategic positioning and given that this is a recovery story.
The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size.
Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.
For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.
For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.
For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.
OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.
This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already.
It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible.
This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…
Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
This week’s offering of Insights across ASEAN@Smartkarmais filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week’s highlights include an update from CrossASEAN Insight Provider Kevin O’Rourke on the running order ahead of the upcoming Indonesian Election on 17th April. In the Equity-Bottom-up section, Angus Mackintosh circles back Pt Matahari Department Store (LPPF IJ) post its underwhelming results and we have a number on contrasting views on e-commerce player Sea Ltd (SE US) post the announcement of its recent placement, which was bigger than its IPO from Johannes Salim, CFA, Arun George, and Rickin Thakrar.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
After a WSJ article on Sunday suggesting as much, Monday morning 8 April 2018 saw the announcement of a Proposed Merger between OUE Commercial Real Estate Investment Tr (OUECT SP) and OUE Hospitality Trust (OUEHT SP) whereby OUEHT unitholders would receive a combination of cash and OUECT shares (S$0.04075 + 1.3853 shares of OUECT) for every share of OUEHT held. Investors in each would receive any “permitted distributions” (dividends, etc) declared by the respective managers in respect of the period from 1 Jan 2019 up to the day immediately before the date on which Trust Scheme becomes effective.
This would create a REIT with S$6.8bn of assets, a pro-forma market cap of ~S$2.9bn, and a free-float of S$1.1bn (up by 57%). OUE Group would continue to own 48.3% of the total.
The benefits to investors would be increased scale (2.2mm square feet of commercial net lettable area, + 1,640 hotel rooms), more borrowing capacity, increased diversification as asset concentration would be lowered, and because the scope of NewREIT would be broader, it would allow REIT managers more flexibility. The above-mentioned points are advertised as being the fodder for a re-rating. The idea of possible index inclusion is mooted as well.
The OUECT presentation says that the merger is “DPU accretive to unitholders” (+2.1% on a 2018 pro-forma basis) while the OUEHT presentation says that the merger is “value accretive to stapled securityholders” (+18.7% NAV uplift per stapled security).
Details of how this all works below.
Separately, two other Singapore deals announced at the end of last week include:
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
In the seventh company in ongoing Smartkarma Originals series on the property space in Indonesia, we now look at Indonesia’s oldest Industrial Estate developer and operator Kawasan Industri Jababeka (KIJA IJ). The company’s largest and the original estate is in Cikarang to the East of Jakarta and comprises 1,239 hectares of industrial land bank and a masterplan of 5,600 ha.
The company has also expanded its presence to Kendal, close to Semarang in Central Java, where it has a joint venture with Singapore listed company Sembcorp Industries (SCI SP). This estate covers a total area of 2,700 ha to be developed in three phases over a period of 25 years and is focused on manufacturing in industries.
The company also has successfully installed a 140 MW gas-fired power station at its Cikarang, providing a recurrent stream utility-type earnings, which cushion against the volatility in its industrial estate and property earnings. After some issues with one of its boilers (non-recurrent) and issues early last year with PLN, this asset now looks set to provide a stable earnings stream for the company.
KIJA has also built a dry-port at Cikarang estate which has been increasing throughput by around +25% every year, providing its customers with the facility for customs clearance at a faster pace of that at the Tanjong Priok port, as well as logistics support.
After two difficult years where the company has been hit by a combination of problems at its power plant, foreign exchange write-downs, and slower demand for industrial plots, the company now looks set to see a strong recovery in earnings in 2019 and beyond.
The company has seen coverage from equity analysts dwindle, which means there are no consensus estimates but it looks attractive from both a PBV and an NAV basis trading on 0.85x FY19E PBV and at a 73% discount to NAV. If the company were to trade back to its historical mean from a PBV and PER point of view, this would imply an upside of 33% to IDR325, using a blend of the two measures. An absence of one-off charges in 2019 and a pick up in industrial sales should mean a significant recovery in earnings, putting the company on an FY19E PER multiple of 9.7x, which is by no means expensive given its strategic positioning and given that this is a recovery story.
The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size.
Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.
For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.
For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.
For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.
OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.
This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already.
It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible.
This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…
Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.
Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.
The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.
The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer.
This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
This is part of a series of M&A guides that our Quiddity* team (see our profiles or the footnote below) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference.
Governing Law for M&A
The Singapore legal system is based on common law.
The Companies Act (Chapter 50) specifies general corporate legislation regarding the formation, constitution, administration, and winding-up of all companies incorporated, registered or carrying on business in Singapore. The Companies Act also classifies all companies under two basic types:
Private Companies: These are defined as companies whose constitution restricts the transfer of shares and limits the number of members to 50. The mergers and acquisitions of private companies are governed by the provisions of the company’s constitution and not regulated by provisions of law.
Public Companies: Companies that do not fall under the above-mentioned definition of Private Companies are classified as Public Companies in Singapore and these companies may or may not be listed on a stock exchange. The mergers and acquisitions of public companies listed in the Singapore Exchange Limited (the “SGX”) are governed and regulated by the following:
This insight focuses on the mergers and acquisitions of listed, public companies in Singapore. In addition to the rules and regulations mentioned in the Laws and Rules noted above, companies in certain sectors are governed by additional industry-specific regulations and statutes which require specific industry regulatory approval in addition to abiding by the laws above.
M&A transactions have continued to grow in size with last year not quite a record at almost US$95bn, but there was a notable falloff in merger count in 2018, reaching the lowest level in five years.
source: Thomson Financial, Institute for Mergers, Acquisitions and Alliances (IMAA) analysis
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
Singapore REITs (S-REITs) are up about 13% year-to-date in 2019 on a total returns basis against the Straits Times Index’s (STI) 8.3%. S-REITs is expected to continue its outperformance on the back of a pause in the US interest rate hike cycle, falling Singapore government bond yields, and improving demand and supply dynamics in the underlying sub-markets. Valuations of many S-REITs, however, may be appearing stretched as S-REITs’ yields have compressed significantly in the last six months, leaving the yield spread over the 10-year Singapore government bond yield at about 350 basis points, which is lower than the historical average spread of about 370 basis points.
Contrary to the popular belief that retail malls are no longer relevant, we view the outlook of the retail space market as positive due to the limited new supply from 2020 and new trend towards omnichannel retailing. Our preference remains on selected retail REITs with exposure to suburban malls such as Frasers Centrepoint Trust (FCT SP) .
Office REITs are given more legs to run with the new CBD incentive scheme in the URA Draft Master Plan 2019. The sustained office upcycle may also spill over to the business parks and hi-specs industrial space, benefiting some of the business parks/industrial REITs.
We prefer selected industrial REITs with a diversified geographical exposure such as Mapletree Logistics Trust (MLT SP) and those with greater exposure to business parks and high-specs industrial space.
The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.
Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States. Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress.
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While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
In the seventh company in ongoing Smartkarma Originals series on the property space in Indonesia, we now look at Indonesia’s oldest Industrial Estate developer and operator Kawasan Industri Jababeka (KIJA IJ). The company’s largest and the original estate is in Cikarang to the East of Jakarta and comprises 1,239 hectares of industrial land bank and a masterplan of 5,600 ha.
The company has also expanded its presence to Kendal, close to Semarang in Central Java, where it has a joint venture with Singapore listed company Sembcorp Industries (SCI SP). This estate covers a total area of 2,700 ha to be developed in three phases over a period of 25 years and is focused on manufacturing in industries.
The company also has successfully installed a 140 MW gas-fired power station at its Cikarang, providing a recurrent stream utility-type earnings, which cushion against the volatility in its industrial estate and property earnings. After some issues with one of its boilers (non-recurrent) and issues early last year with PLN, this asset now looks set to provide a stable earnings stream for the company.
KIJA has also built a dry-port at Cikarang estate which has been increasing throughput by around +25% every year, providing its customers with the facility for customs clearance at a faster pace of that at the Tanjong Priok port, as well as logistics support.
After two difficult years where the company has been hit by a combination of problems at its power plant, foreign exchange write-downs, and slower demand for industrial plots, the company now looks set to see a strong recovery in earnings in 2019 and beyond.
The company has seen coverage from equity analysts dwindle, which means there are no consensus estimates but it looks attractive from both a PBV and an NAV basis trading on 0.85x FY19E PBV and at a 73% discount to NAV. If the company were to trade back to its historical mean from a PBV and PER point of view, this would imply an upside of 33% to IDR325, using a blend of the two measures. An absence of one-off charges in 2019 and a pick up in industrial sales should mean a significant recovery in earnings, putting the company on an FY19E PER multiple of 9.7x, which is by no means expensive given its strategic positioning and given that this is a recovery story.
The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size.
Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.
For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.
For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.
For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.
OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.
This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already.
It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible.
This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…
Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.
Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.
The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.
The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer.
This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
This is part of a series of M&A guides that our Quiddity* team (see our profiles or the footnote below) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference.
Governing Law for M&A
The Singapore legal system is based on common law.
The Companies Act (Chapter 50) specifies general corporate legislation regarding the formation, constitution, administration, and winding-up of all companies incorporated, registered or carrying on business in Singapore. The Companies Act also classifies all companies under two basic types:
Private Companies: These are defined as companies whose constitution restricts the transfer of shares and limits the number of members to 50. The mergers and acquisitions of private companies are governed by the provisions of the company’s constitution and not regulated by provisions of law.
Public Companies: Companies that do not fall under the above-mentioned definition of Private Companies are classified as Public Companies in Singapore and these companies may or may not be listed on a stock exchange. The mergers and acquisitions of public companies listed in the Singapore Exchange Limited (the “SGX”) are governed and regulated by the following:
This insight focuses on the mergers and acquisitions of listed, public companies in Singapore. In addition to the rules and regulations mentioned in the Laws and Rules noted above, companies in certain sectors are governed by additional industry-specific regulations and statutes which require specific industry regulatory approval in addition to abiding by the laws above.
M&A transactions have continued to grow in size with last year not quite a record at almost US$95bn, but there was a notable falloff in merger count in 2018, reaching the lowest level in five years.
source: Thomson Financial, Institute for Mergers, Acquisitions and Alliances (IMAA) analysis
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
While not new news, US-based hedge fund – somewhat well-known for being involved in M&A situations – started accumulating a position in MYOB in January and has now reached a stake of 11%. The last chunks purchased appear to have been done at (or around) A$3.40/share, which is equal to terms. The Manikay letter to the Board asks the Board to consider the market movements since December and posits a fair value in excess of A$4.00/share.
Manikay says that it is interested in becoming a long-term shareholder. But the letter seems to level its criticism of the deal price most pointedly at the fact that the deal was offered and agreed to just a few days off a two-year low in the S&P/ASX200 Index and since then the index has rebounded to within 1.5% of an 11-year high.
A “market context” bump is not a bad case in and of itself because of where peers have moved and where the market has moved, and we won’t know whether that point is taken up by the IER in the Scheme Document.
This strikes Travis Lundy as not a bad reward/risk to buy up to 1-2% through terms. The back end “undisturbed price” has risen and the recent earnings release shows online penetration continues to grow.
Irrespective of whether the Malaysian rare earth processing licence provided to Lynas was without adequate due process (as has been speculated) or whether the facility is indeed an environmental concern; the fact remains the Malaysian government has reneged on the previously agreed-upon three-step licence process – imposing unachievable pre-conditions by the licence renewal date this September – and that is wrong.
Ongoing negotiation with the Malaysian government is the only course of action by which Lynas will achieve the renewal of its operating licence (unencumbered or with “acceptable” caveats). The agreed management pathway for NUF provides scope for a positive outcome from extensive consultation.
But even if a viable resolution is reached, it would only serve to temporarily manage Lynas out of its current predicament – given the vocal domestic opposition, the long-term prognosis is likely the shuttering and removal of the LAMP.
Shares are down 45% from the pre-general election (for Malaysia) peak and ~24% down from when the Review Committee was first mooted in September 2018, and roughly a similar % compared to the 3 December closing price, the day before the pre-conditions were introduced. That still appears too optimistic. Resolving the Malaysian government roadblock will quite likely be a stop-gap measure, at best.
Posco Chemtech is to merge with POSCO ESM through a stock swap at a ratio of 1 to 0.2172865. The merger will be effective as of April 1. The merged company is planning to move from KOSDAQ to KOSPI. These proposals will be put to the vote at the upcoming AGM scheduled for March 18.
KOSPI 200’s re-balancing reference date is after the close of the last trading day in April and the change takes effect on the next trading day after the 2nd Thursday of June. If the KRX approves it before the end of April, Chemtech’s KOSPI inclusion will happen this June. If not, it will have to wait until next year.
New passive money flowing into Chemtech is estimated at ₩68bn. This represents 1.69% of market cap and 4.82% of float market cap. This is less than twice total daily trade value.
In a follow-up note John DeMasi provides an update of events, looking into VSM’s corporate governance documents, reviewing relevant landmark Delaware takeover case law, and elaborating on a possible path to control of Versum for Merck KGaA (MRK GR).
Merck has now filed form DFAN14A filed with the SEC. The talking points/Q&A confirm that the VSM/Entegris Inc (ENTG US) deal caught Merck by surprise as they had not been contacted by Versum as part of any market check.
Other important takeaways include number 7, where Merck stress (yet again) they are fully committed to pursuing their proposal; number 11, where they don’t rule out raising their price; and number 21, where they answer whether they have purchased any VSM shares with “The number of shares of Versum common stock held by Merck … does not exceed a level that would require disclosure.”
Merck continues to speak and act like a bidder who is not going away, and its upcoming roadshow in New York with shareholders underscores its commitment to the deal, adding to the pressure on the Versum Board.
JM has bought 662k shares in JS since the beginning of March, averaging 47.5% of daily volume, narrowing the simple ratio (JM/JS). JM has consistently bought back shares in JS over the years. Since December 2011, buybacks have taken place at an average price/book (for JS) of 0.75x (it is currently at 0.70x according to CapIQ) and at an average JM/JS ratio of 1.75x. The current ratio is 1.70x, bang in line with its 7+ year average. The 20-year average is 1.82x.
Presumably the Keswick family’s long-term plan is collapsing the circularity. But given the significant costs involved – either JM privatizing JS or vice versa – for now, the family will likely opt for the circularity creep, by continuing to chip away at minority ownership as JS takes its dividends in-specie, JM acquires JS, gradually increasing the inter holdings of the two entities.
JS is also trading “cheap”, at a 42% discount to NAV, adjusted for cross-holdings. JS is now around 25% points “cheaper” than JM (which has a discount to NAV of 17%), compared to a one-year average of ~24%. A year ago, the % difference was 6%.
JM has bought 1.8mn shares YTD compared to 2.5mn for the same period last year, while 4.9mn shares were acquired in 2018, compared to 7.6mn, 8.2mn, and 2.1mn in 2015-2017 respectively. The very long-term ratio is marginally in favour of JM, yet the more recent yearly average suggests it is line. JS looks cheap on a discount to NAV basis and it makes sense for JM to continue to acquire shares, favouring JS near-term. I also tilt in favour of this outcome.
Youngone Holdings (009970 KS)‘s 50.5%-held sub Youngone Corp (111770 KS) accounts for 70% of NAV. On a 20D MA, they are now at 312% of σ while the current price ratio is at a 120D high. Sanghyun recommended a set-up. The parent is up 9% this week vs 12% down for the sub. The NAV discount is now out of whack – plugging Sanghyun’s numbers I get a discount to NAV of 35% vs. an average of 48%. The parent is very illiquid. (link to Sanghyun’s insight: Youngone Holdco/Sub Trade: Price Divergence Got Too Wide)
Restaurant Brands Nz (RBD NZ) has announced “Consent has now been granted in respect of the Partial Takeover by certain subsidiaries of Yum! Brands“. The remaining condition is receipt of acceptance from 75% of shareholders. Acceptances currently total 40.68%.
NASDAQ raised its bid for Oslo Bors VPS Holding ASA (OSLO NS) to NOK 158 and lowered its minimum acceptance condition from 90% to two-thirds. The offer period is extended to 29 March. The Long Stop is extended to 4 Mar 2020.
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
Source: Company announcements. E = our estimates; C =confirmed
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The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size.
Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.
For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.
For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.
For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.
OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.
This is a “clean-up” as Kingboard Laminates owns 87.96% of Kingboard Copper Foil already.
It is unconditional in all respects and the Offeror owns 87.96%. The goal is delisting. If they get 17.03% of the minority, they will be able to engineer a delisting. Squeezeout is a bit further out but is far from impossible.
This looks like a done deal. This one should trade at shouldn’t trade at a premium UNLESS…
Quiddity’s new Quiddity Singapore M&A Guide 2019 is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
On 3 April 2019, China Everbright (165 HK)‘s wholly owned subsidiary, State Alpha Limited, purchased 767,052,161 shares representing approximately 30.00% of the Shares in Singapore-listed property developer, Ying Li International Real Estate Ltd (YINGLI SP), from Newest Luck Holdings Limited (the vehicle of Executive Chairman and CEO Mr. Fang Ming) at a share price of SGD 0.140.
Following this transaction, the combined stake of China Everbright and parties acting in concert with it reached 58.91% triggering an obligation to make a mandatory offer for all the shares of Ying Li, a transaction which was announced after the close.
The offer price of SGD 0.140 translates to a premium of 5.9% and 10.9% to Ying Li’s 1-month and 3-month VWAP, respectively but less than a 1% premium to last trade – the company’s shares closed at SGD 0.139 on 3rd April before the announcement. The company asked for a trading halt the next morning and the shares have not traded yet as the large shareholder disclosures have come trickling in on the 4th and the 5th.
The acquirer has stated that it is their present intention to maintain the listing status of the company. However, the acquirer also reserves the right to reevaluate this position if the free float falls below the 10% requirement specified in the listing rules following the completion of the offer.
This is something like a free put for investors and a very low-priced call option for Everbright. The situation raises obvious questions, and despite the “intention” to maintain the listing status, there are reasons why they would not want to. The details are worth a look.
Quiddity’s new Quiddity Singapore M&A Guide 2019is now published with guidelines to the relevant rules, regulations, documentation, and pointers to the Singapore M&A landscape. Watch for more in the series to be published shortly.
This is part of a series of M&A guides that our Quiddity* team (see our profiles or the footnote below) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. These insights are designed to be used as a reference.
Governing Law for M&A
The Singapore legal system is based on common law.
The Companies Act (Chapter 50) specifies general corporate legislation regarding the formation, constitution, administration, and winding-up of all companies incorporated, registered or carrying on business in Singapore. The Companies Act also classifies all companies under two basic types:
Private Companies: These are defined as companies whose constitution restricts the transfer of shares and limits the number of members to 50. The mergers and acquisitions of private companies are governed by the provisions of the company’s constitution and not regulated by provisions of law.
Public Companies: Companies that do not fall under the above-mentioned definition of Private Companies are classified as Public Companies in Singapore and these companies may or may not be listed on a stock exchange. The mergers and acquisitions of public companies listed in the Singapore Exchange Limited (the “SGX”) are governed and regulated by the following:
This insight focuses on the mergers and acquisitions of listed, public companies in Singapore. In addition to the rules and regulations mentioned in the Laws and Rules noted above, companies in certain sectors are governed by additional industry-specific regulations and statutes which require specific industry regulatory approval in addition to abiding by the laws above.
M&A transactions have continued to grow in size with last year not quite a record at almost US$95bn, but there was a notable falloff in merger count in 2018, reaching the lowest level in five years.
source: Thomson Financial, Institute for Mergers, Acquisitions and Alliances (IMAA) analysis
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key Conclusions
Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.
Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors.
Quite apart from the technology, the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.
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