Delicious de-listings

The fall from grace was even more notable when considering the fact that the company publishes the newspaper that gave the Singapore market index its name.

When the present management took the helm, SPH shares were trading at around $3. The stock price had dropped below $1 into the penny stock club.
We all agreed it was a deeply discounted steal, and we drank in sympathy with one of our number. We went home and regained enough sobriety to remember to buy the stock the next day.

I recall then we said the sum of the parts (provided that the golden shareholder would allow for someone else to take over the media business) was a multiple of where it was trading, and it could be in parts or whole complementary to someone else who would value it for much more.

With the media business losing its former core profit-generating status, SPH is often dubbed Singapore Property Holdings. Besides its portfolio of retail and commercial assets, some of it held via SPH REIT, it even owns a clutch Good Class Bungalows along Nassim Road and Yarwood Avenue worth some $144 million. There is the delayed listing of its student accommodation assets via a REIT that can help recycle its capital for higher yield investments.

Yet, SPH is more than that. To me, SPH stands for Singapore Property Healthcare — with the aged home assets included! Let’s not forget it holds a hotchpotch of investments including stakes in listed and unlisted assets as well, such as financial services firm iFast, childhood education chain MindChamps Preschool and car listings portal sgCarMart, just to cite a few.

This past year, along with a series of announcements on strategic reviews, and the subsequent split of the media business into a newly formed CLG (company limited by guarantee), the stock re-rated strongly.

More investors have started taking views around what the sum of the parts would be worth, in whole or in part due to the string of beholders rumoured out there, from Thailand, China and various local possible combinations. Some were less patient (like myself, unfortunately) but banked decent returns along the way. Others pocketed differences in and out of the gyrations up.

Yet there were those clinging on to the days when SPH was a glorious entity that produced not just newspapers but also a steady gush of earnings and dividends. They sat on their “FD” with embedded call options on the upside as it appears and are still chewing their popcorn as corporate fireworks continue.

Kramer vs Kramer

When Keppel Corp tabled its $2.099 lock, stock and barrel (cash + stock) bid, the offer was met with the other Kallang Roar — kelong. No matter that quite properly, SPH chairman Dr Lee Boon Yang, who up till April was also chairman of Keppel Corp, had recused himself from the transaction; nor that the independent financial adviser’s view is that the deal is “in the overall interests of the company and the shareholders”, and that SPH CEO Ng Yat Chung said Keppel’s offer “is the best option on the table right now”.

Out of the 20-odd interested parties in total, many were just there to cherry-pick the choice parts, leaving the lemons to the shareholders. Furthermore, Keppel had obtained all regulatory approvals necessary including in foreign jurisdictions like Australia, which bidders with different pedigrees are not necessarily able to.

Other prospective bidders for its assets felt rebuffed, while some retail investors lamented that as a non-all-cash deal, they would recover only part of their paper losses, and that they still have to sit on some stock that may not fully value their expected interest immediately, although it does give a hope for further upside through the synergies with Keppel.

Yet others in the private equity world who were envious of what was seen to be a lowball price, felt unsure whether they would ever be successful in wading in to compete with Temasek, which gives the omnipresent feel behind both Keppel and Cuscaden Peak’s bids.

When Keppel tabled its “final” offer of $2.351 versus the original $2.099 bid, CEO Loh Chin Hua said it was not because of a competing offer. Since the first bid, Keppel has seen improvement in SPH’s financial performance following its full-year 2021 results announcement on Oct 5. Via “interaction” with SPH’s management team over the past few months, “it is a lot clearer to us the synergies that we can hope to derive from this”, said Loh.

Quite possibly, there were other less visible value. For example, in June, Carro, another car portal, raised US$360 million ($486 million) from Softbank, vaulting it to unicorn status. Would that revalue sgCarMart as well, thereby, adding a nice premium to SPH’s net asset value of $2.56 per share? Or, did the revised offer take into account other intangibles, including tech components?

One cynical wit observed that if Keppel’s acquisition was going to be a walk in the park, then the trade was to buy Keppel anyhow. After all, CMA-CGS, the Marseille-based acquirer of Neptune Orient Lines, managed to turn Singapore’s then-national shipping line nicely around quite quickly. Earlier this year, CMA-CGS even added air freight on top of its shipping services.

Cuscaden Peak’s all-cash $2.10 offer by Ong Beng Seng’s Hotel Properties, together with Mapletree Investments and CLA Real Estate — two other Temasek entities — came as a bolt from the blue.

Or was it? Was it a serious bid? Was it a case of keeping the family jewels whether right pocket or left, to shoo away less preferred vultures from circling?

Or was it simply a stalking horse to create plausible deniability for Keppel to raise its “final” offer to $2.351, thereby addressing market moans of a Temasek-related offer of $2.099 being too cheap and possibly failing to get the 75% approval at the Nov 18 EGM.

Foreign sceptics with an eye for the conspiracy theory wax lyrical about the jewels story, and how corporate Singapore, with dominance by the state, pre-empts private enterprises and prejudices minority investors.

I don’t buy that story. As SPH’s CEO Ng rightly stated — “the door is not closed” to better offers. If others do not make a better offer, then the bird in hand is the best. The rules are transparent.

On Nov 15, the “stalking horse” promptly raised its bid to $2.40 with a mix of cash and SPH REITs (or $2.36 all cash), to just keep it ahead by a nose to see who else will show up!

A little exercise is always good for the constitution

Irrespective of the final outcome of who would eventually carry home SPH, investors, commentators and local market cynics could perhaps consider these points. First, de-listings are a part of the capital market. It is a process that creates value for shareholders where the market does not recognise, or the management was not able to achieve.

The list of privatisation deals by controlling shareholders of thinly traded stocks at prices below book values is a long one. Just on Nov 9, the Tangs of SingHaiyi offered to privatise the developer at 11.7 cents per share, versus its NAV of 14.96 cents.

Also, de-listings is a process that can help reorganise different assets under different listed companies so that value can be unlocked. As an aside, I find it curious that SPH Media, to be formally independent next month, has thus far not described “the impending de-listing of SPH” as yet another loss of a Singapore Exchange-listed company. Rather unsurprisingly, it has extolled the virtues of various bids in its commentaries.

For us, rather than moan about de-listings, perhaps it is time to go shopping again (not only in Singapore). For the astute who does their homework, an M&A or privatisation jackpot may arise if we suspend scepticism.

Second, it is not that unusual that local champions go up against each other. There was the bitter “controlled competition” in 2000 and 2004 between unlisted Mediacorp which went into print, and listed SPH which went into TV broadcasting, for which the water under the bridge still remains deep. Both had, however, been a tad behind the curve in global digital media as they focused on competition across this small town.

Among our sovereign funds, GIC and Temasek routinely get shown overseas private equity deals. And very often, they compete to try to get in, at times bidding against each other. Both entities are known to be investors in tech plays such as Ant Group, Nium, Gojek, DoorDash and Kuaishou Technology.

After the “September surprise” announcement on new boost for local capital markets, does this episode represent another example of local capital training back into our markets?

For example, Temasek was one of the cornerstone investors in Nanofilm Technologies last year, and it added more shares subsequently. It has also become AEM Holdings’ single largest shareholder with its $3.8477 placement. Barely two months after the placement was completed, AEM on Nov 10 raised its sales forecast for the current financial year ending December; and its share price surged by more than a fifth to cross $5 in the days that followed, which puts Temasek deep in the money.

The signs are there for post-pandemic Singapore capital markets to rediscover their mojo. It is not merely because of the few SPACs that are being launched, or the upcoming first REIT listing (Daiwa House Logistics Trust) since the pandemic began. The STI has technically broken out while the Hang Seng Index still struggles, as seen on the charts. Value is being discovered and realised in different segments of the market daily. The main actors have been making their moves. Are we just going to continue eating popcorn?

Chew Sutat retired from Singapore Exchange (SGX) in July this year. He was senior managing director of SGX, and member of SGX’s executive management team for 14 years. He serves on the board of ADDX and chairs its Listing Committee. Chew was awarded FOW Asia Capital Markets Lifetime Achievement Award this year