KepCorp disputes higher conglomerate discount by analysts
It cites strong performance in current climate
Singapore
RIGBUILDER Keppel Corp has refuted analysts who applied a steeper conglomerate discount to the company after it moved to take its listed property arm private.
The group also said it is confident that Brazilian company Sete Brasil's recent funding difficulties would not affect the rigs that KepCorp is building for the firm.
"Our strong performance and earnings visibility in the current climate suggest that the conglomerate discount applied by some analysts is unreasonable," chief executive Loh Chin Hua said in the company's annual report released on Thursday.
Keppel Corp shares have been trading at "single-digit multiples", even though its performance and dividend distributions "have been consistently strong", he added. The counter slipped 10 cents to S$8.95 on Friday.
Conglomerates tend to suffer from a conglomerate discount because their shares would come with exposure to industries an investor might not necessarily want.
When Mr Loh announced the group's takeover bid for Keppel Land in January, he said that KepCorp aims to join the ranks of the top 20 per cent of conglomerates worldwide, which are traded for well above their net asset value.
However, KepCorp's proposal to delist KepLand led several analysts to widen their conglomerate discount on KepCorp to 10-20 per cent in late January.
"Given the far more diversified portfolio . . . a conglomerate discount would need to be applied," said JPMorgan, adding that it is applying a discount of 10 per cent. OCBC analyst Low Pei Han also raised her discount on the stock from 5 per cent to 10 per cent, saying that "synergies . . . may not be immediately apparent" and KepCorp's offer for KepLand was rather rich.
Morgan Stanley pointed out that Hong Kong conglomerates with privately held property businesses have traded at an average discount to net asset value of 33 per cent since 2008, but did not specify the discount it used.
KepCorp is offering a two-tier price for KepLand shares it does not already own - a base price of S$4.38 apiece and S$4.60 if it obtains at least 95.5 per cent of KepLand. Its stake was 93.4 per cent at the end of Friday, according to a Singapore Exchange filing.
Separately, KepCorp chairman Lee Boon Yang said in the group's annual report that the group remains confident that Sete Brasil "will require" the rigs that it ordered from KepCorp despite financing problems. "We have been assured by our customer of their relentless efforts to secure financing for them. We remain committed to delivering these rigs according to the contracts," Dr Lee said.
Sete Brasil, which has been hit by a bribery scandal involving its main client Petrobras, faces 11 billion Brazilian reais (S$4.7 billion) in debt repayments in April and creditors are reluctant to roll over its debt, according to a Reuters report last week.
Ratings agency Standard & Poor's downgraded Sete Brasil from B- to "selective default" on Monday after Sete Brasil defaulted on a US$250 million bilateral bridge loan from Standard Chartered Bank.
