SPH offer: Keppel eyeing Reit for student housing business; other assets could also be monetised

KEPPEL Corp's S$2.24 billion proposed buyout of Singapore Press Holdings (SPH) sans the media business will result in a further "quick monetisation" - as soon as within the next three years - of certain assets in SPH's portfolio that the conglomerate is set to add under its belt - once the deal pans out.

"What is attractive for us in SPH's portfolio is that it comprises different assets... some of them could be quite liquid and we can monetise immediately. The timing of the potential monetisation will be quick... quite soon - for example, within the next three years," said Keppel chief executive Loh Chin Hua in a media briefing on Monday.

"When I say monetisation, it doesn't mean that it will all be sold. Of course, the non-core assets could (involve) that. Some (others) could be monetised through asset recycling into a Reit (real estate investment trust) or trust," he continued.

For one thing, SPH's purpose-built student accommodation (PBSA) business, he said, is "ripe for securitisation in quite short order" into private equity funds - or "Reit-able". SPH is owner, manager and developer of a portfolio of PBSA in the United Kingdom and Germany, and currently operates two distinctive brands, Student Castle and Capitol Students.

"Again, this links up nicely with our intention to create more fee income opportunities and participation in valuation upside as we execute our recycling plan," he added.

"Asset monetisation" seems to be the centrepiece of Keppel's asset-light strategy even as it cranks up mergers and acquisitions, such as this just-announced surprise privatisation bid for SPH. Since it launched the monetisation agenda last October, the conglomerate, 20 per cent owned by Temasek Holdings, has announced S$2.3 billion of deals, of which about half or S$1.15 billion is cash already in the bag.

That strategy is paying off well for shareholders. Last week, Keppel rewarded shareholders with an enticing interim dividend, which quadrupled to S$0.12 per share from a year ago as it swung into the black for the first six months to June with a net profit of some S$300 million from a loss of S$537 million in the corresponding period a year ago.

Keppel said it will fund the SPH buyout under a scheme of arrangement via S$1.08 billion cash through various sources including internal cash and borrowings and the remaining with units of Keppel Reit.

"There is... quite a lot more cash (from the asset monetisation) that will be coming in, which will help to reduce our net gearing even if it goes up on a pro forma basis assuming the (SPH) deal is closed today," he said, adding that post the SPH acquisition, Keppel's gearing is still projected to remain below one time. As at end-June 2021, the group's gearing was 0.85 time.

Could the latest privatisation bid of SPH tamp down dividend payouts going forward after the company set the bar - and expectations - high in its latest half-year showing? The company's monetisation is aimed at keeping its business asset light and to reposition the portfolio for new growth initiatives, Mr Loh replied. "So, we will still need to invest to create new profits to pay dividends in the future... (it) cannot just be a pure monetisation and returning all capital to shareholders."

As to how M1, a telco it jointly owns with SPH, which is facing headwinds amid the pandemic, fits in with the plan to unlock value, said the company remains a "very important part" of the group's connectivity segment and is on a multi-year journey to transform itself into a cloud-native platform.

Mr Loh said he expects the deal, pending shareholders approval on both sides and regulators' nods, to be wrapped up by the end of the year.

As part of the transaction, SPH will concurrently distribute in specie about 45 per cent of its stake in SPH Reit valued at S$1.2 billion to SPH shareholders. SPH will retain 20 per cent of the Reit units, which will be part of the acquisition by Keppel.

He explained: "To run on an asset-light model, we prefer to own about 20 per cent of the Reits and trusts that we have. For those reasons, this transaction is actually quite elegantly structured and achieves the goals that we have. Frankly, it also gives the SPH shareholders another Reit to own, which is producing quite good returns.

"And while we are buying (SPH) at about one time NAV (net asset value), we are uniquely placed to derive an enhanced value from this acquisition and some of the platforms we can create through the Reits."

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).

SPH owns and publishes The Business Times, which will be part of the proposed CLG.