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Market abuzz over ownership of Keppel T&T, M1

Some analysts expect Keppel Corp to privatise Keppel T&T, with the latter working in tandem with Singapore Press Holdings to sell their respective M1 stakes

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Given Keppel Corp's role in driving the latest developments, the spotlight immediately fell on what the conglomerate, whose businesses include rigbuilding and real estate, was planning to do.

Singapore

KEPPEL Corp's announcement on Monday morning about a potential corporate action relating to two listed entities has set the market abuzz, with some analysts predicting that it may privatise one and sell its stake in the other.

The speculation came after Keppel Corp said it is considering a potential transaction of its stake in Keppel Telecommunications & Transportation (Keppel T&T), its logistics and data centre arm. It has also asked Singapore Press Holdings (SPH) to take part in a possible transaction involving SPH's and Keppel T&T's stakes in M1, Singapore's third-largest telco.

No specific deal terms were announced and there is no certainty or assurance that any transaction will occur, Keppel Corp and SPH said in concurrent announcements.

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Keppel Corp shares closed at S$7 on Monday, down 0.4 per cent or 3 Singapore cents, while SPH shares closed at S$2.80, down 0.7 per cent or 2 Singapore cents. Trading was halted for Keppel T&T and M1. SPH, a media and property group, owns The Business Times.

Given Keppel Corp's role in driving the latest developments, the spotlight immediately fell on what the conglomerate, whose businesses include rigbuilding and real estate, was planning to do.

OCBC analysts Low Pei Han and Joseph Ng said that the most likely scenario in Keppel T&T's case would be a privatisation bid by Keppel Corp, which already holds a 79.2 per cent stake.

"There has also long been talk that Keppel T&T may be privatised by Keppel Corp, especially for the prized data centre assets and some parts of the logistics business," the OCBC analysts said. Through Keppel T&T, Keppel Corp controls shares in data centre trust Keppel DC Reit and in M1.

"We note that Keppel T&T has mentioned that it is undertaking a strategic review of its China logistics portfolio, so we do not exclude the possibility of a restructuring of Keppel T&T."

UOB Kay Hian analyst Foo Zhi Wei said that it would be relatively cheap to privatise Keppel T&T, which was trading at about 12 times historical earnings before the trading halt according to Bloomberg data.

"Valuations are low, and there's upside from a massive pipeline of data centres," he said.

But CGS-CIMB analysts Lim Siew Khee, Foong Choong Chen and Ngoh Yi Sin said that a partial divestment to strategic partners was also an option.

"Both [options] make sense to grow the data centre, e-commerce and logistics businesses, although the use of a lead-up announcement lowers the chance of a direct buyout," CGS-CIMB said.

Keppel Corp's plans for M1 were more of a mystery.

OCBC's Ms Low and Mr Ng reckoned that Keppel may be roping in SPH to sell their stakes together.

"Given how M1's share price has dropped over the last few years - it is now down close to 60 per cent from its peak in early 2015 - it may be tempting for a third-party buyer to come in," they said. "SPH's and Keppel Corp's combined stake is about 32.8 per cent, so a potential buyer will be the single largest shareholder in M1, though a mandatory general offer may be triggered."

CGS-CIMB thought that Malaysian telco Axiata Group, which holds a 28.7 per cent stake in M1, could be a potential buyer if the price is right.

"If a buyer emerges for Keppel's and SPH's combined...stake, it could trigger a mandatory general offer, which we think could be positive for M1's share price. Apart from this potential catalyst, we see no near-term change in business value till industry consolidation," the CGS-CIMB analysts said.

But UOB Kay Hian's Mr Foo thought that Keppel Corp could be seeking to buy SPH's 13.5 per cent M1 stake. He reasoned that Keppel T&T's shares should have increased more before the announcement if the market had sniffed a possible sale of M1 shares and that it might be tough to find an external buyer after the last attempt failed.

In 2017, Keppel T&T, SPH and Axiata jointly hired Morgan Stanley to explore a possible sale of their combined 61.5 per cent stake in M1. That exploration was called off a few months later because the consortium was not satisfied with the proposals that it received.

Whatever the outcome, Keppel Corp could be looking at hefty outlays if it decides to make any acquisition. The Keppel T&T shares that it does not already own were worth about S$158 million before Monday's trading halt. Keppel Corp's Keppel T&T stake was worth about S$602 million. Keppel T&T's stake in M1 had a market value of S$292 million, which one analyst said could help to pay for a Keppel T&T privatisation.

As for SPH, the market's expectation is more straight forward. Analysts see SPH selling its M1 stake, which was valued at S$203 million as at last Friday's close.

"Should SPH be able to divest its stake, that could assuage some doubt in the market over its ability to maintain its dividend this year," OCBC said.

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