OUE group to buy Bowsprit and stake in First Reit for S$202m

Singapore

THE OUE group is one step closer to realising its ambition of creating an asset management platform for several Reits (real estate investment trusts), under a proposed reconfiguration of the Riady family's healthcare companies in deals worth S$202 million.

The mainboard-listed developer and its Catalist-listed unit OUE Lippo Healthcare (OUELH) plan to buy a 60 per cent and 40 per cent stake, respectively in Bowsprit Capital Corporation for S$99 million from Indonesian developer PT Lippo Karawaci.

Bowsprit manages mainboard-listed, healthcare-focused First Reit.

Separately, OUELH, which owns healthcare and related facilities in Japan and China, will acquire a 10.63 per cent stake in First Reit for S$103 million from Lippo Karawaci.

To fund these acquisitions, OUELH is launching a renounceable underwritten rights issue of about 2.2 billion new rights shares at S$0.0675 apiece on the basis of one rights share for every existing share held by entitled shareholders as at book closure date.

It will seek shareholder approval for the proposed transaction at an extraordinary general meeting (EGM) to be convened.

OUE and Itochu Corporation, which own 64.35 and 25.32 per cent stakes in OUELH, respectively have given irrevocable undertakings to subscribe fully for their entitlements.

Itochu has also given an irrevocable undertaking to vote in favour of the acquisitions at the EGM.

Dr Stephen Riady, OUE's executive chairman, said in a statement that the Bowsprit acquisition is part of OUE's on-going strategy to create a sizeable asset management platform comprising of diversified Reits.

This is not unlike what Keppel Capital and ARA Asset Management have achieved, said a market watcher.

"Bowsprit and First Reit will benefit from the support, network, management skills and know-how from the company's portfolio of Reits," he said. "We will continue to enhance the assets under management (AUM) of our asset management platform with a view to bringing us closer to our target of doubling AUM in the foreseeable future."

As at June 30, 2018, Bowsprit manages a property portfolio that is worth about S$1.3 billion.

He noted that OUE's AUM will reach S$8 billion by the end of this year, including the proposed acquisition, the existing Reit portfolios and completion of OUE Downtown's injection into OUE Commercial Reit.

That is up from the approximately S$5.7 billion of AUM as at June 30, 2018 held by OUE Commercial Reit and OUE Hospitality Reit.

Lee Yi Shyan, chairman of OUELH, said that the proposed acquisitions feed into OUELH's long-term strategic goals to diversify into key healthcare markets under an asset-light growth model that is earnings accretive.

First Reit currently holds 20 healthcare-related properties across Indonesia, Singapore and South Korea, which fit into OUELH's geographical expansion plans, OUELH said.

Bowsprit also touted the opportunity for geographical expansion - into Japan and China with OUELH's existing portfolio of assets - in a statement on Tuesday night.

"This effectively expands the trust's geographical reach within Asia and its potential to deliver greater returns to unitholders," Victor Tan, chief executive officer of Bowsprit, said.

Havard Chi of Quarz Capital Management called this a win-win for all parties involved.

"OUELH will finally get a vehicle that they can recycle their assets into," he said. "First Reit will get a financially strong investor - majority backed by OUE and Itochu - that owns an attractive portfolio of Japanese nursing home assets which can be potentially injected into First Reit."

CMC Markets analyst Margaret Yang pointed out that First Reit's share prices have declined in the past few months due to its large exposure to the Indonesian market. The rupiah rout could have been a catalyst for this proposed transaction, she said.

"The Singapore dollar has appreciated 10 per cent against the Indonesian rupiah over the past 12 months," which works in the buyer's favour in purchasing Indonesian high-quality healthcare properties with Singapore dollar funding, she noted.

The proposed deal is also seen as positive for Lippo Karawaci.

Moody's Investor Service warned in June that Lippo Kawawaci is among the most exposed to weaknesses in the rupiah among Indonesian developers, and recent media reports have mentioned concerns over its operating cash flow and whether it is sufficient to finance interest payments in the months ahead.

Ketut Budi Wijaya, Lippo Kara-waci's president director, said: "We are delighted to announce this asset divestment plan has been carried out in a timely manner, thereby improving (our) liquidity substantially. The S$202 million funds will ultimately strengthen (our) balance sheet and further enhance its cash flow." Its shareholding in First Reit will be reduced from 28.2 per cent to 10.63 per cent following these transactions.

OCBC Bank is the sole financial adviser to OUELH for the proposed acquisitions, and the manager and underwriter for the rights issue.