SPH ends up, Keppel down after privatisation proposal

Singapore

INVESTORS appeared to cheer Keppel Corp's surprise bid to take Singapore Press Holdings (SPH)'s non-media business private, and analysts have been mostly positive on the expected value for both Keppel and SPH shareholders.

Shares of SPH rose 2.1 per cent or S$0.04 on Tuesday, to end at S$1.92. It was among the most traded stocks of the day on the Singapore Exchange, by both value and volume, with 52.3 million shares changing hands worth S$101 million.

Keppel shares, however, rose briefly in intraday trading but ended at S$5.45, down S$0.04 or 0.7 per cent.

Keppel had on Monday proposed to take SPH private in a deal valuing the latter at S$3.4 billion. The consideration for each SPH shareholder is a combination of cash, Keppel Reit units and a distribution-in-specie by SPH of SPH Reit units. The deal is contingent on SPH getting shareholder approval for the carve-out of its media business, which includes the publication of The Business Times.

Units of both the real estate investment trusts (Reits) ended Tuesday lower. Keppel Reit closed at S$1.13, down S$0.07 or 5.8 per cent; and SPH Reit closed at 89 Singapore cents, down 2.5 cents or 2.7 per cent.

Most analysts believe the offer for SPH is fair. UOB Kay Hian analyst Lucas Teng recommended investors accept it, saying that the offer price could be slightly higher "but not by much".

DBS Group Research analysts Geraldine Wong and Derek Tan added that the privatisation gives shareholders an opportunity to monetise stakes in the non-media business post the media restructuring plans.

"The offer grants unitholders a chance to trade up for stakes in SPH Reit and Keppel Reit, both of which are supported by growing yields of 2 to 4 per cent year on year going into FY2022," said the DBS analysts.

For Keppel shareholders, meanwhile, the deal looks to be value-accretive, analysts said.

OCBC Investment Research said that while the price of roughly book value to be paid for SPH's assets means the deal is "not a steal", there are synergies with the conglomerate's businesses - namely urban development, connectivity and asset management.

Keppel can also look to enhance SPH's assets before monetising them, analysts said.

DBS noted that a number of SPH's assets - its purpose-built student accommodation (PBSA) segment, Seletar Mall and Woodleigh Mall - will be "ready for monetisation" within the next three years.

The listing of the PBSA is also on the cards, said CGS-CIMB analyst Lim Siew Khee. The asset is valued at S$1.4 billion, with the UK investment seeing yields of 4-6 per cent. This comes as the pace of booking for SPH's PBSA segment remains healthy, with more than 90 per cent occupancy.

There were also speculations of a potential merger of Keppel Reit and SPH Reit, which may result in the formation of the sixth-largest Singapore Reit with an estimated S$6.9 billion market capitalisation.

DBS, however, hopes that both entities are given the opportunity and runway to grow on their own.

"Sometimes in the pursuit of scale, we neglect the uniqueness (in terms of exposure, growth, and cyclicality to the economic cycle) of both S-Reits if left on their own," the DBS research team said.