Keppel makes surprise S$2.2b bid to privatise SPH

Anita Gabriel
Published Mon, Aug 2, 2021 · 09:41 AM

KEPPEL Corp has launched a S$2.2 billion bid to privatise Singapore Press Holdings (SPH) ex-media, describing the deal as a "rare" and "unique" opportunity to tap SPH’s "quality portfolio" and speed up growth, scale up and gain capabilities in its key focus areas from asset management, urban development to connectivity.  The deal sits on “familiar grounds” where Keppel BN4 has stron : BN4 0%g expertise in, said Keppel in an announcement to the Singapore Exchange (SGX) on Monday morning. 

Down the road, the deal could also open up the possibilities of unlocking value in SPH’s purpose-built student accomodation (PBSA) business through a potential future Reit listing or creation of a private fund vehicle, said Keppel. 

In a year dominated by a pandemic-hastened frenzy of restructurings among Singapore’s corporate bigwigs, some more radical than others, as they tuned out legacy assets and channelled hot trends to repackage and unlock value, this latest buyout of SPH by Keppel could rank as the biggest surprise. 

SPH itself is in the midst of a significant restructuring led by a strategic review, as it awaits shareholders' nod on a deal proposed back in May which involves spinning off its media arm to a company limited by guarantee (CLG).

"As part of the company’s Vision 2030, the company has committed to refocus its portfolio to be an integrated business, providing end-to-end solutions for sustainable urbanisation, with an asset management arm to fund the group’s growth and provide a platform for capital recycling,” said Keppel. The T39portfo : T39 0%lio, whose income is largely recurring based, is projected to immediately be earnings accretive on a pro forma basis. The deal will bump up Keppel’s consolidated earnings per share as at end-2020 on a pro forma basis to 32.3 Singapore cents a share from 27.8 cents. 

It will increase Keppel’s profit after tax and non-controlling interests (Patmi) to 56 per cent from 51 per cent in terms of pro forma contribution of recurring income. Future recurring income growth will be through AUM (assets under management) scale and fee-based income growth in the asset management business while further improvement in earnings quality could come from the concurrent land bank sales, asset monetisations and potential offshore and marine exit, said the company. 

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Under a scheme of arrangement, Keppel’s wholly-owned Keppel Pegasus is offering S$2.099 a piece for SPH shares. SPH shareholders will receive cash of 66.8 Singapore cents and 0.596 Keppel Reit units from the offeror. They will also receive 0.782 SPH Reit units per share from SPH.

The price tag of S$2.099 a piece represents a nearly 40 per cent premium to the last traded price of SPH shares at S$1.50 per share before the strategic review was announced in May. The offer values Keppel Reit and at 71.5 Singapore cents and SPH Reit at 71.6 Singapore cents per share from a distribution in-specie by SPH.

Keppel said pro forma gearing post-transaction is projected to be below one time, and the cash consideration could be funded using a combination of internal cash, bank borrowings, instruments with equity treatment or bonds. Liquidity will still remain robust post-acquisition, it continued.

The proposed deal will enable Keppel to consolidate ownership in its existing partnerships with SPH in M1 and Genting Lane data centre, enabling it to maximise synergies in these strategic assets.

The acquisition of SPH’s PBSA business will provide an immediate and sizeable foothold within the highly resilient and fast growth PBSA sector in the UK and Germany, which are underpinned by rising domestic and international higher education demand. In addition, Keppel also gains access to the integrated platform capabilities to develop, manage and operate PBSA assets in-house, providing the foundation, through Keppel Capital, to grow its presence within the education sector - an identified area of growth for Keppel Capital.

As for SPH’s nursing homes, Keppel said it would “enrich” and provide visible operating synergies to its senior living solutions business while diversifying the existing Watermark senior living business in the US through access to Singapore and Japan markets. This will provide it with sizeable international presence within the sector.

Keppel said the acquisition of a stake in SPH Reit and full ownership of its Reit (real estate investment trust) manager will provide Keppel with a “natural platform” to recycle its retail assets (including I12 Katong) and also tap the recovery and growth of the Singapore retail market, which has seen a rebound to near pre-pandemic levels.

“With quality assets on hand, coupled with the company’s experience in asset management, SPH Reit provides a compelling organic recovery play that investors would be interested in,” it added.

The deal also fits with Keppel’s move towards an asset-light business model by driving growth and diversification in its Keppel Capital asset management platform. Pro forma AUM is expected to grow by 27 per cent from S$37 billion to S$47 billion, with expanded sector coverage into emerging PBSA and senior living sectors, as well as the recovering retail sector.

Keppel will have a “rare opportunity” to acquire a strategic stake in SPH Reit and full ownership in its Reit manager. Keppel will hold around 20 per cent stakes in both Keppel Reit and SPH Reit post transaction.

It added: “The company will enjoy synergies in managing SPH Reit as part of the company’s larger asset management platform with higher AUM. On top of accretive fee-related and investment income, the inclusion of SPH Reit provides the company with a retail-focused platform to facilitate greater certainty for future capital recycling of retail assets, further driving third-party funds growth and increasing recurring fee-related income”.

Over the longer run, Keppel said it could also explore opportunities to grow the Reit’s AUM, achieving benefits of scale through asset injections and other strategic initiatives. Keppel, about 20 per cent owned by Temasek Holdings, last week reported that it swung into the black for the first six months to June and rewarded shareholders with a surprise quadrupled dividend. It posted a net profit of some S$300 million in the first half of FY2021 – a stark reversal from a loss of S$537 million in the corresponding period a year ago.

To grow earnings quickly, it said last week that it will actively explore “opportunistic” mergers and acquisitions on the back of the significant balance sheet space released from the monetisation programme that will allow it to undertake inorganic options to re-position its portfolio for new growth. To date, it has announced over S$2.3 billion of asset monetisation since it embarked on the programme in September last year. About half of the transactions have been completed so far, said group chief executive Loh Chin Hua, adding that the company expects to surpass S$3 billion in asset monetisation ahead of schedule, and will aim to achieve the higher end of its S$3-5 billion target by end-2023.

Just last month, Keppel said it planned to undertake a mammoth merger and has signed a non-binding pact with offshore and marine (O&M) giant Sembcorp Marine, still stickly as a result of the pandemic-led oil slump, to start talks on merging their sizeable O&M operations. The discussions are a few months away from reaching a definitive agreement.

 

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