Wee Cho Yaw tightens grip on property assets with UOL's Marina Centre deal

NEARLY two decades ago, Singapore's banking tycoon Wee Cho Yaw almost lost all his hard-earned, non-core banking assets.

Back in 2001, the Monetary Authority of Singapore (MAS) mandated the separation of banks' financial and non-financial businesses to ensure that banks remained focused on their core businesses and competencies. Local banks had three years to dispose of their non-core assets. That meant Mr Wee's United Overseas Bank (UOB) had to relinquish its association with property-related United Overseas Land (UOL) and, by extension, United Industrial Corp (UIC). It also pushed the Wee family to sell their stake in property-linked affiliate OUE to Indonesia's Riady family in 2006.

But over the years, not only did a tenacious Mr Wee managed to hold onto what he had, even fending off a bid for UOL in 2004 from government investment company Temasek Holdings, he tightened his grip and maintain control of UIC. UOL now owns more than 50 per cent of UIC - a process which took more than 25 years to achieve. Philippine tycoon John Gokongwei Jr owns 37 per cent of UIC.

UIC, which started out as a detergent company, has good exposure to some of the best-located office buildings in Singapore. Today, its portfolio include SingLand Tower, Clifford Centre, SGX Centre and the iconic twin towers of The Gateway, Marina Square Shopping Mall as well as the three Marina Square hotels - Pan Pacific Singapore, Marina Mandarin Singapore and Mandarin Oriental, Singapore.

Last Friday's announcement is but another step by UOL to further consolidate control of UIC.

Its subsidiary, UIC, coughed up S$485.3 million to buy out the 24.27 per cent share in Marina Centre Holdings Private Limited (MCH) held by its three partners - OUE, Finnegan Investments and Mackmoor.

In connection with that acquisition, MCH has agreed to buy 25 per cent of Aquamarina Hotel Private Limited (AHPL) from a subsidiary of OUE for S$190 million. Aquamarina owns the Marina Mandarin Singapore, one of the hotels located in the Marina Square retail and commercial complex.

The S$675 million transaction is a fine stroke of ingenuity. The MCH acquisition will see UIC owning 77.34 per cent of MCH and UOL the remaining 22.66 per cent. The AHPL acquisition will enable MCH to own 75 per cent of AHPL, with the remaining 25 per cent held by UOL Equity Investments Pte Ltd, a wholly-owned subsidiary of UOL. What this means is that UIC and UOL will gain full control of Marina Square Shopping Mall, Pan Pacific Singapore hotel and Marina Mandarin hotel as well retain 50 per cent control in Mandarin Oriental hotel. They will be able to "explore asset enhancement opportunities to unlock value for the various assets, including possibility of tapping into the incentive scheme introduced in the latest Master Plan 2019" to bring life back to the downtown area, built in 1985.

The Urban Redevelopment Authority's strategic development incentive scheme announced in late March, which allows for an increase in plot ratio of 25-30 per cent, could see UOL-UIC convert part of the Marina Square mall into offices or apartments, and the land next to Pan Pacific into serviced apartments.

Greater savings

At S$485.3 million for the 24.27 per cent stake in MCH, the transaction values the 700,000 square foot Marina Square retail complex and the three hotels at just under S$2 billion. This compares to DBS Research's estimated revalued net asset value (RNAV), minus debt, of around S$3 billion, which may explain why the share prices of UIC and UOL have been inching higher since the announcement. UOL shares hit S$7.82 on April 17, compared to its closing price at S$7.29 on Friday, while UIC shares climbed above S$3, up from S$2.91.

Moreover, one can expect greater savings on hotel management fees when Singapore Marina International Hotels, OUE's subsidiary, cease operating the Marina Mandarin Singapore by end 2019, giving UOL an opportunity to rebrand and rename the hotel.

The acquisition is indeed a coup for UOL as it consolidates its control of UIC. The timing cannot be more perfect, with all three partners willing to cash out of MCH. Just a week earlier OUE-related OUE Commercial Reit and OUE Hospitality Trust jointly announced merger plans to create a new S$2.83 billion trust. OUE Commercial Reit is offering a handsome S$1.37 billion in cash and units in OUE Commercial Reit to OUE Hospitality Trust security holders to agree to the transaction.

Given UIC's low free float of about 12.9 per cent, which is near the 10 per cent threshold below which its trading may be suspended, some analysts are also speculating that UIC could eventually be delisted and privatised.