While maintaining a “buy” rating for CapitaLand, RHB Securities has raised its target price for the property developer to $4.40 from $4.25 previously.
This comes after CapitaLand released its scheme document on July 17 – outlining details of the proposed restructuring of its businesses into two companies.
RHB says the scheme document has led it to be more positive on the restructuring exercise.
See also: What CapitaLand's restructure means for its REITs
“Independent financial advisor Evercore has deemed the deal ‘Fair and Reasonable’, and our recommendation is also to vote in favour of the transaction,” RHB analyst Vijay Natarajan writes in a note dated July 21.
Under the proposed restructuring exercise, CapitaLand’s investment management platforms and lodging business will be consolidated into CapitaLand Investment (CLI).
Meanwhile, the company’s real estate development business will be privately held by existing controlling shareholder CLA Real Estate Holdings, a wholly-owned subsidiary of Temasek Holdings.
CapitaLand expects CLI to remain in the FTSE/EPRA Nareit Index post the proposed restructuring.
RHB says the deal will preserve the existing CapitaLand ecosystem.
Under a reciprocal rights of first refusal arrangement between CLI and CapitaLand, CLI will be given a first right to invest up to 100% in relevant assets from CapitaLand, it notes.
On the other hand, CapitaLand will be given a first right to invest up to 100% in any development opportunity within CLI, it adds.
RHB points out that management expects double-digit return on equity on a “steady-state basis”.
“In the mid-to-long term, CLI is expected to adopt a more asset-light approach to investments, by taking slightly lower stakes in new investments and also divesting some of its existing stakes in REITs and private funds,” says Natarajan.
Moreover, CLI’s pro-forma gearing is expected to be lower at 0.56 times, compared to CapitaLand’s 0.68 times, says RHB.
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CapitaLand shareholders are expected to vote on the proposed restructuring at an extra general meeting and scheme meeting on Aug 10.
As at 1.46 pm, CapitaLand was up 9 cents or 2.3% at $3.97 with 20.4 million shares changed hands.
