Li Ka Shing-linked ARA Asset Management lands buy-out bid

Singapore

FOR a real-estate fund manager, access to capital is crucial and this may well explain why ARA Asset Management Ltd's founder John Lim is tying up with American private-equity (PE) heavyweight Warburg Pincus to launch a takeover of the company - if the rumour holds true.

Mr Lim is leading a consortium of existing shareholders in the buyout plan, according to a Wall Street Journal report citing people familiar with the situation.

Collectively, Mr Lim, The Straits Trading Company and Cheung Kong Property Holdings own close to 47 per cent of ARA.

This news surfaced on Friday after ARA requested for a trading halt on Thursday in response to a trading query from the Singapore Exchange (SGX).

ARA shares had jumped 6 per cent to a 52-week high of S$1.495 on Thursday in active trade, before a trading halt was imposed at 4.31pm.

When approached, Mr Lim and a spokeswoman from Straits Trading declined to comment; Cheung Kong Property spokesmen could not be reached.

While the structure of the deal is still unknown, some market players believe that a scheme of arrangement is more likely than a general offer when the buy-out involves PE firms. The Business Times understands that DBS and Goldman Sachs are financial advisors for the deal.

Founded in 2002 by Mr Lim with the backing of Hong Kong billionaire Li Ka Shing, ARA was listed in November 2007 with a market cap of S$669.37 million and real-estate AUM (assets under management) of US$4.7 billion. It has since grown into a S$1.49 billion company by market cap, managing assets worth S$30 billion as at June 30. These include assets held by eight listed Reits, including Suntec Reit, and other private funds.

Straits Trading Co became the largest shareholder of ARA in late 2013, when it bought a 20.1 per cent stake at S$1.733 a share from Mr Lim and Cheung Kong Property, which is controlled by Li Ka Shing.

Based on Bloomberg data, Mr Lim now has an 18.93 per cent stake in ARA; Cheung Kong Property owns 7.84 per cent of the company.

The buyout attempt, if successful, would be the latest in a spate of billion-dollar privatisation deals involving Singapore-listed companies.

While several buyout attempts by major shareholders of late have been triggered by a perceived undervaluation of their companies, industry sources note that ARA shareholders have broader reasons to make this move, such as the ease of access to funds from PE firms for such a capital-intensive business.

PE firms are flush with record amounts of dry powder to deploy. A 2016 global report by Bain & Company noted that with cash distributions from exits continuing to run well ahead of calls on previous commitments, abundant fresh capital enabled most PE funds to hit or exceed their fund-raising targets last year. They were also raising capital more quickly, on average, than in any year since the height of the last PE cycle nearly a decade ago.

Warburg Pincus, which has more than US$40 billion in AUM worldwide, opened a Singapore office this year, to seek out companies in Singapore and the region with strong growth potential.

In ARA's recent acquisition spree, its sixth "ARA Harmony" fund - set up with China Life and South Korea's Peninsular Investment Partners in October - acquired a S$4.1 billion commercial property called Century Link in Shanghai Pudong, marking its biggest single-asset property transaction in the Asia-Pacific this year. A month earlier, ARA reportedly won the bid for a half stake in Capital Square office tower in Singapore's CBD from Keppel Corporation's Alpha Investment Partners.

DBS pegged a target price of S$1.76 for the ARA stock in its October "buy" report, citing attractive valuation and earnings visibility.

Macquarie Research, which issued a flash note on Friday, kept its S$1.95 target price and "outperform" rating. Its analysts said in a note: "ARA has built up a very scalable platform across different product groups and geographies."

Still, ARA was last traded at market cap-to-AUM of 4.4 per cent (assuming an AUM of S$33.8 billion on completion of the Century Link transaction), compared to its Asian peers like Australia-listed Charter Hall at 10.9 per cent of AUM and Tokyo-listed Kenedix at 6.5 per cent of AUM, they added.