Bumper Q1 for M&A in Singapore

Bankers credit privatisations in property sector

By
Jamie Lee
It has been a busy first quarter for bankers, here and in other parts of Asia, with a slew of
acquisitions and privatisation deals - PHOTO: REUTERS
[SINGAPORE] It has been a busy first quarter for bankers, here and in other parts of Asia,
with a slew of acquisitions and privatisation deals.
Bankers say that it has been a bumper quarter, lifted mainly by privatisations in the property
sector, and that they see many more deals in the pipeline.
But some are also watching if greater public dissent by minority shareholders and activists
could put a damper on the mergers and acquisitions (M&A) process, including that of pricing.
CapitaLand last Friday sweetened its privatisation offer for CapitaMalls Asia (CMA), of
which it already owns about 70 per cent, following concerns that CMA had been
undervalued, a point hammered home in a published commentary by former senior managing
director at Temasek Holdings, Michael Dee.
Shareholder activism is here to stay, say market insiders.
"There is greater activism around these transactions," Axel Granger, head of M&A for South-
east Asia at Bank of America Merrill Lynch, told The Business Times. "Investment bankers
will have to pay more attention to the opinion makers. It is a natural evolution. It is
something we have seen in the United States, and it is moving to Asia."
But Willard McLane, head of Asean corporate and investment banking at Citi, noted that the
current level of activism in this region is still relatively modest.
"I don't see much shareholder activism in Singapore in the way we see it in the US, for
example. We haven't seen a lot of cases where shareholders are publicly promoting agendas
or blocking deals," he said.
But not all calls for higher offers are successful.
United Industrial Corp stuck to its takeover offer price for subsidiary Singapore Land
(SingLand), though the share price movement of SingLand - as it traded above the offer price
- suggested that shareholders were looking for more.
But in other cases, more money was put on the table. Besides CapitaLand, the consortium led
by tycoon Ong Beng Seng and Wheelock Properties also boosted its offer for shares in Hotel
Properties.
There are several factors fanning this wave of privatisations. Bankers note that many deals
were prompted by cheap financing, and the lacklustre market which often "undervalues"
stocks.
The equity markets have valued real estate companies at "a significant discount to their
underlying values", noted Galen Lee, UBS' South-east Asia head of real estate.
"We are seeing some real estate companies undertake privatisations of their subsidiaries to
streamline and re-align the groups' businesses and portfolios," he said.
In Singapore, the privatisation trend may also be driven by the cooling measures affecting
listed real estate developers, Mr Lee added. This has significantly depressed many property
stocks.
Despite the public protestations, Mr Granger noted that the average premium - which has
historically been about 25-30 per cent - has stayed stable in Singapore over the past few
years.
Meanwhile, M&A activity across Asia continues to buzz.
In the Asia-Pacific (excluding Japan), the total value of deals in the first quarter of the year
stood at US$102 billion, up 36 per cent from the same period a year ago, according to
Mergermarket. This is the strongest first-quarter deal flow on Mergermarket's record, which
began in 2001.
Singapore companies are also starting to get into the pan-Asian M&A party.
Temasek Holdings' US$5.7 billion purchase of a 25 per cent stake in drugstore chain Watsons
was the third-largest deal announced in the period.
Bankers note that Temasek is likely in an investment cycle, and has been fairly active in
snapping up stakes in non-financial companies. It has also "doubled down" on Olam
International, one banker noted.
But Temasek has also not shied away from offloading companies in which it has a significant
stake. STATS ChipPAC, which counts Temasek as its major shareholder, announced last
Friday that it had received a "non-binding expression of interest" from a buyer. The
semiconductor assembly firm has a market cap of just over $1 billion.
As Singapore companies regionalise, more outbound activity will be expected in the quarters
ahead, as opposed to inbound deals, said Mr McLane.
Meanwhile in Singapore, bankers are watching for potential consolidation among locally-
listed mid-sized real estate investment trusts (Reits), though they note that some of these
deals may be complicated in structure.
"In an environment where everyone is expecting interest rates to rise, yield is becoming less
attractive," said Mr Granger, referring to Reits.
There may be some spillover activity in Asia as large multinational corporations (MNCs)
consolidate, observed Mr McLane. There is also likely to be more private-equity transactions
in Singapore, he noted.