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CapitaLand makes $3.06b offer for CMA

It plans to delist CMA to enhance strength in integrated projects

[SINGAPORE] In a move to simplify its group structure and enhance its strength in integrated projects, CapitaLand has launched a $3.06 billion voluntary cash offer for CapitaMalls Asia (CMA) to privatise the 65.3 per cent subsidiary.

Delisting CMA will make the group more nimble, enabling it to react faster to increased opportunities in integrated projects here and in China, CapitaLand chief executive Lim Ming Yan said yesterday.

The offer price of $2.22 per share represents a 23 per cent premium to CapitaMalls' closing share price of $1.80 last Friday. It is also at a 27 per cent premium to the past one-month volume weighted average price (VWAP) of CMA shares and a 20.7 per cent premium to CMA's net asset value per share as at Dec 31.

Arthur Lang, CapitaLand group chief financial officer, described it as a "fair price", one which reflects an attractive premium for minority shareholders.

The offer, funded by internal resources and borrowings, factors in the growth of CMA since its listing in 2009 and the dividends paid out to shareholders over the years, he said.

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CapitaMalls, which manages 105 shopping malls, derived 43 per cent of its revenue from China last year, 32 per cent from Singapore and the rest, mostly from Japan and Malaysia.

The deal is immediately earnings accretive to CapitaLand's shareholders and raises the return on equity from 5.4 per cent to 6.7 per cent.

Analysts responded positively to the offer yesterday; at least one "outperform" rating was issued.

Standard Chartered analyst Regina Lim, who reiterated the "outperform" call, said investors may switch to CapitaLand from CMA to access the latter's well-differentiated retail platform.

"We believe the transaction is a good way to redeploy the cash that CapitaLand received from the divestment of Australand," she said, in a reference to CapitaLand's March sale of its remaining 39.1 per cent stake in Australia's Australand Property Group for around A$849 million.

OCBC property analyst Eli Lee said the offer price is "decent", given that it represents a 21 per cent premium to book value and a reasonable 8 per cent discount to revised net asset value.

"CMA's shares have mostly traded below its IPO price ($2.12) since its listing in 2009, due to various structural and macro-economic headwinds, and this provides an opportunity for investors to exit at a reasonable valuation," he said.

The trend here and in China now leans towards integrated projects - those comprising hotel or serviced residence, retail, office and residential components; some pure residential players in China have also moved into mixed developments, CapitaLand's Mr Lim observed.

The individual components of an integrated project complement one another: pre-sales of residential units generate cashflow to fund the shopping malls and offices, and serviced residences provide the traffic to the malls and higher returns for tenants.

It is not easy for a single business unit like CMA to undertake such projects, he said. Yet, at the same time, having the shopping mall entity listed "makes it more cumbersome for (CapitaLand) to undertake such projects".

Post-delisting of CMA, CapitaLand's structure will be further streamlined. The number of listed entities in the CapitaLand group will be cut from eight to six, Mr Lim said. Development activities will be undertaken by CapitaLand, while most of its stabilised assets will be held in listed Reits.

There will be no downstream offer for the Reits - CapitaMall Trust and CapitaRetail China Trust - where CMA remains their sponsor with respective deemed stakes of 27.6 per cent and 37.1 per cent.

Morgan Stanley and Credit Suisse are advising CapitaLand on the transaction.

CapitaLand's offer for CMA shares will turn unconditional when 90 per cent of all CMA shares are obtained. CMA said yesterday that its board of directors will form a committee to appoint an independent financial adviser to advise the board on the offer.

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