Yanlord makes new mandatory offer for United Engineers

Singapore

CHINA-BASED property developer Yanlord Land Group on Friday morning launched fresh mandatory offers for United Engineers (UE), in a deal valuing the latter at S$1.66 billion.

Yanlord's wholly-owned subsidiary Yanlord Investment (Singapore) (YIS) is offering to acquire the ordinary and preference shares in the property, engineering and construction group at S$2.60 apiece in cash.

This is the same as the price that was offered in the takeover bid in 2017 - now since lapsed - by a consortium comprising Perennial Real Estate, Heng Yue Holdings and Yanlord.

Perennial and Heng Yue are out of the picture this time around. The new offers were triggered after Yanlord bought out both their holdings in YIS, also at S$2.60 per share. Perennial's 72 per cent-owned unit, Perennial UW, sold its entire 45 per cent interest, while Heng Yue offloaded its 6 per cent stake.

Yanlord paid S$229.7 million cash for the combined 51 per cent.

YIS, previously known as Yanlord Perennial Investment (YPI), was the special-purpose vehicle for the consortium's 2017 offers for UE.

After the share purchases, Yanlord now indirectly owns all of YIS, which holds 35.27 per cent of UE common stock and 97.71 per cent of UE preference shares. That makes Yanlord the single largest shareholder of UE.

The offers will turn unconditional only if YIS gains control of at least 50 per cent of UE's shares.

Yanlord said it does not intend to delist UE. It also has no current plans to make major changes to UE's business, redeploy its fixed assets or to discontinue the employment of staff.

Given Perennial's exit from YIS, Perennial chief executive Pua Seck Guan will resign as a UE director.

Perennial said it sold its stake to focus on investments with direct value creation opportunities and to recycle capital; Yanlord said it acquired the holdings to consolidate its interest in UE and WBL Corp (YIS' other principal asset), to "enhance portfolio alignment, leverage synergies and strengthen its position" in Singapore and China.

Yanlord, Perennial and Heng Yue, via the YPI consortium, had bought 33.4 per cent of UE from OCBC in July 2017 at S$2.60 per share, as the winning bidder in a lengthy sale process which began in September 2016.

That triggered the mandatory offers for UE shares, which later lapsed due to insufficient takers.

The S$2.60-per-share price was at a 7.9 premium to the last-traded price on Sept 26, 2016, and a 21.7 per cent premium to the 12-month volume weighted average price before and including that date.

Yanlord noted on Friday that the implied price-to-net-asset-value ratio (P/NAV) of 0.9, based on the offer price, is in line with valuations for precedent transactions involving Singapore-listed property developers.

However, compared to the last-close price when the June 2017 offers were made, the offer price was at a 4.1 per cent discount. Likewise, it is at a 2.26 per cent discount to Tuesday's closing price of S$2.66 before a trading halt was called.

UE shares fell four cents on the day to S$2.62 on Friday.

The deal is once again a "takeunder" - an offer to acquire a public firm at a level below the current market price - said analyst David Blennerhassett of Quiddity advisors.

"Both Perennial and Heng Yue have opted to exit their positions at the same price they paid to enter into UE in 2017, suggesting S$2.60 is/was a full offer with minimal upside," he noted in a Smartkarma report on Friday.

UE shareholders can accept the offers if they wish to recalibrate their portfolio at a favourable valuation amid low trading liquidity and economic uncertainty. They are also welcome to remain invested in UE if they believe in its long-term prospects, Yanlord said.

If the minimal-acceptance condition of 50 per cent is not met, YIS will not be able to make another offer for UE ordinary shares for 12 months.

In addition, if the UE ordinary share offer becomes unconditional or YIS acquires statutory control of UE, YIS will make a mandatory unconditional offer for the rest of the WBL shares, at S$2.5947 - the same price at which Yanlord bought the WBL shares from Perennial and Heng Yue.

WBL is an unlisted company involved in property development and investment, engineering, manufacturing and distribution. YIS now owns a 29.9 per cent of WBL, while UE indirectly holds a 69.14 per cent stake.

Mr Blennerhassett wrote on Smartkarma that there had been speculation of a full offer from either Yanlord or Oxley since the lapse of the 2017 offer. "This announcement (on Friday) falls short of those expectations," he added.

Oxley owns 24.48 per cent of UE. It became a substantial shareholder on Aug 4, 2017, with a 5.33 per cent stake, before accumulating more shares at prices above S$2.60 per share, during the consortium's offer period.

In February 2018, Oxley was among minority shareholders that blocked UE from buying the WBL shares it did not already own, at S$2.07 apiece.

DBS Bank is Yanlord's sole financial adviser for the UE offers.

Shares of Yanlord closed at S$1.18 on Friday, up S$0.01 or 0.9 per cent. Perennial ended 0.5 cent or 0.9 per cent higher at S$0.535.