Brief Singapore: OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario and more

In this briefing:

1. OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario
2. Kingboard Starts Voluntary Unconditional Offer for 88% Held Sub Kingboard Copper Foil
3. Everbright Mandatory Offer for Ying Li Intl Real Estate – Going Cheap
4. Quiddity Singapore M&A Guide 2019
5. Battery Technology- The Key To An Electric Vehicle Future

1. 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.

2. 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.

3. 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.

4. 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. 

5. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• 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.