Conglomerates are not built equally

WHEN Singapore's Keppel Corporation made a bid of as much as S$3.2 billion in January to buy the shares of subsidiary Keppel Land (KepLand) that it did not own, Keppel Corp CEO Loh Chin Hua expressed an ambition for his company to be like the world's top 20 conglomerates, which trade at a sizeable premium to their net asset values.

In making that remark, Mr Loh was perhaps aiming, like what every good CEO should, to create shareholder value. That is, if Keppel Corp - then trading at nine to 11 times forward earnings and 1.4 times book value - could rearrange the bits and pieces of its diverse businesses in a better way, then the stock market would decide the company is worth more.

The KepLand privatisation was interesting as it came after a series of corporate actions by Singapore conglomerates that aimed to sell off assets instead of acquiring them.