Brief Singapore: Indonesia Property-In Search of the End of the Rainbow- Part 7 – Kawasan Industri Jababeka (KIJA IJ) and more

In this briefing:

1. Indonesia Property-In Search of the End of the Rainbow- Part 7 – Kawasan Industri Jababeka (KIJA IJ)
2. OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario
3. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
4. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap
5. Quiddity Singapore M&A Guide 2019

1. Indonesia Property-In Search of the End of the Rainbow- Part 7 – Kawasan Industri Jababeka (KIJA IJ)

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. 

It has a blue chip customer base both local and foreign at Cikarang including Unilever Indonesia (UNVR IJ), Samsung Electronics (005930 KS), as well as a number of Japanese automakers and their related suppliers.

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. 

2. OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario

Last evening, Wall Street Journal reported that Oue Commercial Real Estate Investment Tr (OUECT SP) and Oue Hospitality Trust (OUEHT SP) are in discussions to merge in a cash and stock deal. OUE Commercial will offer to buy OUE Hospitality to create a single entity that will remain listed on the SGX.

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 11^th 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.

3. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil

April 4th after the close, a wholly-owned subsidiary of Hong Kong-listed Kingboard Laminates Holdings (1888 HK) (which itself is 70.93% owned by Kingboard Holdings (148 HK) (formerly known as “Kingboard Chemical“)) launched a VOLUNTARY UNCONDITIONAL CASH OFFER for Kingboard Copper Foil Hldgs (KCF SP). 

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.

4. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap

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 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.

5. Quiddity Singapore M&A Guide 2019

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: 

1. 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. 
2. 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:
   • Securities and Futures Act (Chapter 289)
   • Singapore Code on Take-overs and Mergers (“The Takeover Code”)
   • SGX Listing Manual 
   • Singapore Companies Act
   • Singapore Competition Act

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 in Singapore

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.