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UEL's cash offer for WBL helps Yanlord Perennial recover capital in 'more cautious' approach: report

BY using United Engineers (UE) to make a cash offer for WBL, the Yanlord Perennial consortium, which took control of UE and bought a small stake in WBL in July, appears to be taking a more cautious approach to its recent investment.

Smartkarma insight provider Foo Sze Ming wrote in a note on Friday: "This transaction is not exactly the outcome that we have previously envisaged. It appears that Yanlord Perennial Investment (YPI) has chosen to take a more cautious, risk management approach towards its UEL investment."

On Thursday, UE made an offer to pay S$2.07 per share for the shares in WBL it does not already own - the same price that YPI paid OCBC for their WBL shares in July.

YPI controls UE and is a interested party, so the deal will first be put to a vote with the rest of UE's shareholders, including mid-cap developer Oxley Holdings.

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Mr Foo wrote: "We had thought that YPI might want to take control and actively manage WBL to extract the maximum value from the company. But it seems that YPI's preference is to let UE's current team manage WBL instead and forgo the potential upside."

At present, YPI owns 10 per cent of WBL (see amendment note), and is committed to acquire another 19.9 per cent from OCBC and related parties unless an outside party makes a competing bid before Dec 18.

If YPI accepts the cash offer from UE, it will swop the 29.9 per cent stake for S$174 million in cash.

"This will reduce YPI's overall investment in UEL/WBL by 23.8 per cent, from S$730 million to S$556 million," Mr Foo noted.

UE's offer implies a valuation of S$582 million for WBL, which is below its net tangible asset (NTA) value of S$699.2 million.

WBL is a public company that was delisted from the Singapore Exchange in 2014. UE owns 67.6 per cent of WBL, another 2.5 per cent is in public hands.

Mr Foo believes the deal is positive for UE shareholders, since YPI is transferring its stake in WBL to UE at their original cost. This will raise UEL's NTA and improve its valuations.

"This is the sweetener for UE's shareholders in return for the higher balance sheet risk resulting from the transaction," he added, since UE would have to take on more debt for the cash offer.

UE shares traded at S$2.61, up a cent or 0.38 per cent as at 12.55pm.

SAC Capital Private is the independent financial adviser and will deliver its opinion on the deal to UEL shareholders before the extraordinary general meeting is called.

Amendment Note: An earlier version of this story said YPI owned 10 per cent of UE. It was in fact WBL that YPI presently has a 10 per cent stake in. The article has been corrected to reflect this.

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