Jardine Matheson Holdings (JMH) has just announced it is planning to take 85%-owned subsidiary Jardine Strategic Holdings (JSH) private, at US$33 ($44.38) in cash per share. The US$5.5 billion buyout deal represents a 32.3% discount to its last announced NAV of US$48.71, which is the sum of its investments in JMH, Dairy Farm International, Hongkong Land, Mandarin Oriental and Jardine Cycle & Carriage (Jardine C&C).
In an analyst briefing on March 8, JMH’s management said the price is at a premium to JSH’s last done price before the announcement, its volume weighted average price for the week, and month before the announcement. The offer price is also a premium to the highest price within the past year. The privatisation will be implemented via an amalgamation under Bermuda Law which requires 75% of JSH’s shareholders to vote in favour. “We will vote our 85% shareholding in favour of the resolution so it’s certain to be approved,” says John Witt, managing director of JMH. Once the amalgamation is approved by shareholders in the EGM to be held in April, the acquisition will take place within four days.
However, given JSH’s NAV as of end 2019 and end 2018 was $57.98 and $68.46 respectively, using premium to NAV may not be the only or best way to value JSH. Indeed, the buyout deal makes sense as it streamlines and simplifies the sprawling group’s cross-holdings. JSH holds 78% of Dairy Farm and 78% of Mandarin Oriental, 75% of Jardine C&C, and 50% Hongkong Land. Following the acquisition of JSH, JMH would hold these directly and the cross-holding of JSH’s 59% in JMH will be cancelled.
JMH believes the collapse of the cross-holding will result in a more transparent ownership model, a material enhancement of JMH’s EPS, and dividends, and an increase in financial and operational flexibility. In addition, Witt says the value of the cross-holding has run its course and JMH could no longer effectively increase its stake in JSH.
Moreover, the cost of debt is cheap. However, JMH will lower its gearing which rises to 16% following the transaction, by generating cash flow. On the earnings impact, JMH estimates the privatisation would have increased its 2020 underlying profit by US$83 million on a pro-forma basis. The transaction would also have increased JMH’s 2020 underlying EPS from US$2.95 to US$3.84. Based on unaudited results, JMH expects underlying net profit for the FY2020 ended December 2020, of US$1.085 billion and underlying EPS of US$2.95, based on unaudited results.
Frasers Property needs equity for new projects
Last month, Frasers Property (FPL) announced a somewhat dilutive rights issue to raise as much as $1.28 billion at a price of $1.18 per share, which is a 47.5% discount to its last announced NAV of $2.58, and its postrights pro forma NAV of $2.25 per share.
FPL listed in 2014, and has been on something of an acquisition spree in the past seven years. In 2014, it acquired Australand (Frasers Property Australia) for A$2.6 billion. In 2017, FPL acquired Geneba Properties, a Netherlands-based real estate investment company. In 2018, FPL acquired a further 26% stake in TICON Industrial Connection Public Co in which it already owned more than 40%. TICON is now known as Frasers Property Thailand.
FPL is sponsor and major unitholder to five REITs. Frasers Centrepoint Trust, Frasers Logistics and Commercial Trust and Frasers Hospitality Trust are listed on the local bourse. Frasers Property Thailand Industrial Freehold & Leasehold REIT and Golden Ventures Leasehold REIT are listed on the Stock Exchange of Thailand.
Why has FPL announced a $1.28 billion rights issue at a significant discount to NAV if it has offtake vehicles for its stabilised assets or the ability to raise more debt? “It’s been very deep deliberations at our end. We have an option of recycling assets, sell down investment or raise more debt,” admits Uten Lohachitpitaks, group chief investment officer of FPL.
“The decision on the rights issue is … to build resiliency for the company. And within the asset classes, has given us confidence there will be good deployment in our secured pipeline,” he adds. The word resilience, agility and financial flexibility were mentioned several times by Lohachitpitaks during a media and analysts briefing on March 8.
FPL has announced that $700 million of the rights proceeds will be earmarked for acquisitions, investments, capital expenditure and development of industrial, logistics and business park assets; $250 million for the establishment of private funds or joint ventures or similar arrangements to invest in property assets, including commercial and ancillary assets; and $330 million for general corporate purposes.
During the briefing, Lohachitpitaks drew attention to FPL’s pipeline of $734 million in industrial development properties of which three are in Australia, and one in the Netherlands.
“We want to build financial flexibility and agility, and capital partnership is an important strategy now and growing our recurring earnings. Rather than us going out to raise more debt or issue other instruments, the elements of the new equity fund raising is one that can give shareholders good long term benefits, in having our company in a more flexible financial status, and we want to build confidence,” Lohachitpitaks explains.
In addition, FPL has undertaken some large billion dollar projects in Australia that may need equity. Last year, Dexus and Frasers Property Australia were appointed to develop a A$2.5 billion ($2.59 billion) project at Central Place Sydney, at Sydney’s Central Station. The mega-project includes a tech-focused design with two office towers of up to 39 levels.
FPL has also committed to developing 118ha of industrial land at the Mamre Road Precinct in Western Sydney with Altis Real Estate Trust. The new estate will accommodate up to 400,000 sq m of logistics and industrial facilities, and may have an end value of A$1 billion when finished. The transaction involved the purchase and amalgamation of several sites in the western Sydney precinct from private owners, spanning properties from 649 to 763 Mamre Road.
When asked if asset classes such as retail and hospitality are likely to be less important in the future, Lohachitpitaks says “we have not earmarked them from the rights issue but that does not mean they are not important”.
Ironically, the FPL announcement says the major shareholders, TCC Assets and Thai Beverage Public Co (ThaiBev) could end up raising their stake to 89.87% if minority shareholders do not take up their stakes.
“In execution of the rights issue we have secured commitment from two shareholders and that conviction from them in us is an important decision to allow us to move forward on this rights issue decision. They already own a pretty large chunk. This exercise is not meant to address just the free float. There are many other things we are looking to address, such as going on to build a more resilient profile and asset class, and financial agility and financial flexibility in our strategy,” Lohachitpitaks repeats.
“Even if all the minorities are not subscribing, we will still maintain the minimum free float by the Exchange. All existing shareholders have the right to participate. We’re giving everyone an equal chance if they believe in this strategy and we’re pricing the rights at a discount and it is compelling to existing shareholders to take up,” Lohachitpitaks points out.
Next in line on the buyout train
So, which counter could be the next privatisation candidate? Perhaps Fraser & Neave (F&N) as FPL’s sister company has a low free float and is trading well below its NAV? However, if FPL can remain listed with an even lower free float post-equity raising, F&N is unlikely to be privatised.
The next candidate from the table could be United Industrial Corp. And based on the privatisation of Singapore Land, UOL Group is unlikely to pay the full NAV for UIC.
Great Eastern Holdings, 87.9% held by Oversea-Chinese Banking Corp could also be a candidate with the banking group’s new management. GEH is not in the table because its share price is above NAV. However, it is trading well below its embedded value of $36.82 as at Dec 31, 2020.
