Temasek should publicly state its position on the long-rumoured CapitaLand-Mapletree merger

[SINGAPORE] The long-rumoured merger of CapitaLand Investment (CLI) and Mapletree Investments appears to have stalled, according to news reports last week. For some investors, this might have been something of a relief.

It was never entirely clear how a combination of the two groups would have been structured. However, with CLI’s shares down more than 8.1 per cent this year amid persistent weakness in China’s real estate sector, this does not appear to be a particularly advantageous moment for it to pursue a merger with the privately held Mapletree group.

Moreover, combining the real estate investment trusts (Reits) of CLI and Mapletree – which would logically follow a merger of the two groups – may be tricky to pull off because of their divergent market valuations.

In particular, CapitaLand Integrated Commercial Trust (CICT) is trading at 1.14 times its net asset value (NAV) while Mapletree Pan Asia Commercial Trust (MPACT) is trading at only 0.77 times its NAV.

This column said last year that minority unitholders of MPACT may baulk if they are not offered a price close to NAV in a merger with CICT, while minority unitholders of CICT may fear such a deal will dilute the market valuation of their own units.

Among the factors cited last week that apparently prompted CLI and Mapletree to shelve their discussions about a merger were concerns about valuation, disagreements about personnel revamps, and how weak business performance in some areas would be handled.

Yet, despite being a shareholder of CLI and a unitholder in some of its Reits, I cannot help but feel a little disappointed that a merger may no longer be on the cards. With increased operational scale, the combined entity would have been in a better position to compete internationally.

This larger and more competitive real estate investment group would probably also have helped raise the profile of the Singapore market.

Should Temasek – which controls both the CapitaLand and Mapletree groups – have used its influence to settle the disagreements that stymied the merger talks?

For instance, could it have pushed the boards and top management of the two groups to agree on a strategy to handle their underperforming businesses, and steered them towards the appointment of a slate of suitably qualified executives to run the merged entity?

Could Temasek have supported a carve-out of some of MPACT’s weaker assets in order to improve its market valuation and pave the way for a combination with CICT?

Navigating controlling shareholder power

One commonly held view among market watchers is that a company’s shareholders, directors and top executives should stay in their respective lanes.

Shareholders are supposed to provide capital, elect directors and approve major corporate actions. They deserve good governance, transparency and a decent return on their capital.

Boards are responsible for governance, accountability and strategic direction. They hire and fire chief executives, and set their compensation. They are expected to act in the best interests of the company, and all its shareholders.

The role of management is to run a company’s business. They drive financial performance, manage employees and find ways to overcome operational obstacles.

Companies with controlling shareholders that can effectively appoint all their directors and determine their business strategies are often said to pose risks to investors – because of the possibility that these dominant shareholders will not stay in their lane.

The OECD Asia Capital Markets Report 2026, published last month, said high ownership concentration and limited pressure from institutional investors are among the key factors linked to persistent valuation discounts across the region.

The report noted that 52 per cent of listed companies in Asia (excluding China and Japan) have more than half their equity in the hands of their top three shareholders, versus 44 per cent globally. Across these same markets, 39 per cent of companies were trading below book value at the end of last year, versus 34 per cent globally.

Institutional investors can support value creation by pushing the boards and management of their investee companies to improve their governance and capital efficiency. Indeed, in most Asian markets, institutional investors own a larger share of companies trading at high price-to-book (P/B) ratios than companies trading at low P/B ratios.

The Organisation for Economic Co-operation and Development’s report said the influence of institutional investors is relatively limited in this region, though – they own only 21 per cent of the market capitalisation of Asian markets, versus 47 per cent globally.

The report added that the relationship between institutional ownership and P/B values probably runs both ways. “On the one hand, low P/B companies often exhibit characteristics, such as concentrated ownership, weak fundamentals and low capital efficiency, that both justify their lower valuations and discourage institutional investment,” it said.

“On the other hand, when institutional investors do own meaningful equity stakes, they may contribute to stronger performance and governance, supporting higher valuations and resulting in greater ownership in high P/B companies.”

My own view is that investors should not avoid companies simply because they have dominant shareholders. Instead, they should try to understand the inclinations of these major shareholders, and position themselves accordingly.

By the same token, controlling shareholders that want their companies to grow and garner a wider investor following should not keep silent about their intentions.

Temasek’s active support

To be clear, I do not know what Temasek’s views are about a potential CLI-Mapletree merger. Yet, it seems unlikely to me that the boards of the two companies would have begun discussing a deal they were not convinced Temasek would ultimately approve.

Temasek’s active support of transformation initiatives at some of its Singapore portfolio companies also suggests to me that it would be inclined to help ease CLI and Mapletree’s path to a merger.

Notably, Keppel and Sembcorp Industries unlocked billions of dollars in value by unloading their offshore and marine divisions and refocusing their business profiles with the backing of Temasek.

Temasek also supported CapitaLand’s restructuring proposal in 2021 that saw its property development arm going private while its real estate investment management activities and lodging business remained public under what is now CLI.

These big transformations would not have succeeded without their boards and management doing their part, of course.

Sats’ acquisition of Worldwide Flight Services (WFS) got off to a shaky start, with its shares plunging when the deal was first announced in 2022, and the incumbent CEO of WFS unexpectedly quitting in 2023. Yet, the enlarged group’s management team has since delivered strong results, and its shares are now close to their pre-pandemic levels.

As the controlling shareholder of CLI and Mapletree, Temasek should publicly state whether it is supportive of a merger. This would help align the market with its strategic intentions.

It would then be up to the boards of CLI and Mapletree to organise a deal that respects the interests of minority investors, and assemble a senior management team accountable for unlocking the full potential of the combined group.

The writer owns shares of CapitaLand Investment, and units of CapitaLand Ascott Trust and CapitaLand China Trust