Perennial, Yanlord-led consortium buys UEL stake, triggering takeover

Singapore

A CONSORTIUM led by Perennial Real Estate Holdings and Yanlord Land Group has acquired a 33.5 per cent stake in United Engineers Limited (UEL) at S$2.60 per share and an initial 10 per cent stake in WBL Corporation for S$2.07 per share.

The stake acquisition of UEL comprised 33.4 per cent of its ordinary shares and 70.2 per cent of its preference shares, triggering a mandatory offer for UEL.

The offeror has also undertaken to acquire another 19.9 per cent in WBL at a later date.

This latest development puts to bed a one-year search by UEL vendors OCBC, Great Eastern Holdings and the bank's founding Lee family to offload their stakes in the century-old companies.

Yanlord Land owns a 49 per cent stake of the consortium, Perennial Real Estate and its two sponsors Kuok Khoon Hong and Wilmar International own 45 per cent, while the remaining 6 per cent is held by Heng Yue Holdings, which is solely owned by Chinese investor Kung Chun Lung.

Mr Kung is also behind China's Hengyue Group, which had taken a 27 per cent stake in CapitaLand's Raffles City Shenzhen, according to a 2016 CapitaLand release.

At the offer prices, the consortium is valuing 100 per cent of UEL and 29.9 per cent of WBL at about S$1.83 billion.

Both Yanlord Land and Perennial had halted trading of their shares on Wednesday pending the announcements, before lifting the halt for Friday.

Perennial has sizeable portfolios in Singapore and China while Yanlord has been a pure China property player across Tier-1 and 2 cities since its public listing in June 2006.

The consortium said it plans to review the business and operations of UEL. In Singapore, it hopes to unlock value of UEL and WBL's income-producing and freehold assets through selective enhancement works.

Yanlord, known for its high-end residential, commercial and integrated projects in China, is gaining an immediate entry into Singapore's commercial real estate through UEL's portfolio.

Its chairman and chief executive officer Zhong Sheng Jian said: "As a key global financial centre, Singapore's real estate market continues to present a good value proposition for developers such as ourselves seeking to develop stable and recurring revenue streams."

Perennial CEO Pua Seck Guan noted that the partnership between Perennial and Yanlord brings together "synergistic skillsets and on-ground delivery capabilities, which will facilitate the unlocking of the potential value in United Engineers for all stakeholders".

The total S$729.7 million purchase price for the 33.5 per cent stake in UEL and 29.9 per cent stake in WBL will be funded by cash reserves, debt instruments and bank borrowings.

The offeror intends to maintain UEL's listing status. In the event the mandatory offer for UEL becomes unconditional, a "chain offer" will be triggered for WBL shares not already owned by the offeror and its concert parties.

WBL vendors have undertaken not to accept the chain offer for the 19.9 per cent stake that the offeror has already committed to buy.

UEL now owns a 67.6 per cent stake in WBL, which was delisted in February 2014.

The offer price for UEL is a 7.9 per cent premium to its "undisturbed share price" on Sept 26, 2016, before OCBC and Great Eastern announced a strategic review of their UEL and WBL stakes; it is a 4.1 per cent discount to the last transacted share price on July 11.

The offer prices for UEL and WBL are 0.88 and 0.78 times net asset value (NAV) respectively, while trading price-to-NAV ratios among Singapore-listed property peers range from 0.4 to 0.8.

OCBC and its subsidiary Great Eastern said on Thursday that these offer prices were the highest received from the bidders for both UEL and WBL shares after adjusting for dividends paid by UEL this year.

UEL's largest shareholders formally started assessing buyer interest this year and were said to have pulled in a strong lineup of suitors looking to acquire it. Credit Suisse has been advising them since September.

They were earlier mulling a bid from Thai tycoon Charoen Sirivadhanabhakdi in 2014, but talks fizzled out the following year.

Both UEL and WBL have since shed several non-core assets to become leaner and more attractive as acquisition targets.

UEL's investment property portfolio of over S$1.8 billion includes the flagship mixed-use development UE BizHub City and one-north, as well as office building UE BizHub Tower. It also owns a few industrial properties and manages Changi Link and the Park Avenue chain of hotels, serviced apartments, serviced offices and convention centre.

In China, WBL Corporation owns Shenyang Orchard Summer Palace mixed-use integrated development and Shenyang Orchard Manor residential development, as well as assets in Chengdu and other cities. But this has been a drag on UEL's performance amid challenging conditions in these Chinese cities.

The consortium said it hopes to improve the performance of WBL's properties in China by "leveraging on Yanlord and Perennial's expertise and execution capabilities, as well as their existing network and strong relationships with local authorities".

In a regulatory filing, UEL said its board of directors will appoint an independent financial adviser to advise its independent directors on the mandatory offer.