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01/06/2011

Modest valuations may prompt more developers to privatise
 
A SPATE of privatisation offers by property counters in the past year, most recently by Allgreen Properties, has spurred interest in spotting the next property stock that could take this path.
 
Shareholders are watching with particular interest as offers to delist a company sometimes come with a significant premium to the traded share price.
 
Analysts have thrown up property names such as Wheelock Properties, Wing Tai Holdings and GuocoLand as highly likely candidates for privatisation.
 
These firms have a low public float, which means only a small proportion of their shares are publicly held. Major shareholders dominate and these firms trade at deep discounts to their book value and revalued net asset value (RNAV), making them prime candidates for privatisation, say analysts.
 
RNAV is a measure of what the company is worth if it is sold.
 
Experts say attractively modest valuations and low borrowing costs may prompt more companies to consider privatisation.
 
Other possible privatisation plays in the sector include Ho Bee, SC Global,
 
Hiap Hoe, LC Development, Orchard Parade Holdings and Sim Lian Group.
 
Last week, Malaysia's richest man, Mr Robert Kuok, who already controls Allgreen, tabled a deal to buy the rest of the firm and take it private.
 
The stock was trading at a discount of nearly 40 per cent to its book value prior to the offer.
 
He lodged a cash offer of $1.60 per share, about 20 per cent above its highest traded price in the past three years.
 
This offer comes on the back of two successful delistings within the property sector in the past year.
 
Hongkong Land privatised its subsidiary MCL Land in August last year at an offer price that was 25 per cent more than its last trading price, while Soilbuild Group was privatised after an offer from managing director and co-founder Lim Chap Huat at a 13.5 per cent premium over its last traded price.
 
UOB Kay Hian property analyst Vikrant Pandey identified Wheelock Properties and GuocoLand as the most probable candidates for privatisation.
 
Wheelock is 75 per cent owned by its non-listed parent Wheelock and Company, while GuocoLand is 65 per cent owned by the Guoco Group.
 
While they are trading at a more than 30 per cent discount to their respective RNAV per share, policy risks in the residential sector will make it difficult for them to realise their full RNAV over the near term, Mr Pandey said.
 
'The low liquidity of (GuocoLand) shares and the litigation relating to its Beijing Dongzhimen project in China have been weighing down on its share price. Privatisation could be viewed as a viable route to better realise its value,' he said.
 
A Kim Eng research note said Wing Tai Holdings was a plausible candidate for privatisation as it is trading at discounts of 30 per cent to book value and 45 per cent to RNAV. Despite the recovery of the stock from its recent low in March, its broad overall momentum is still weak, it added.
 
'Many other property-related stocks are similarly trading at discounts of 30 to 40 per cent to their book values, particularly those with substantial exposure to the residential market due to potential policy headwinds,' Kim Eng said.
 
Hospitality plays such as GuocoLeisure may also be in line for privatisation, it said.
 
Sias Research investment analyst Liu Jinshu said privatisation can occur when a firm's stock prices are below the management's estimated value.
 
'Most managements would have an expected value in mind, especially when they are conscious of potential future developments. The probability is further increased when management is closely related to the majority shareholder,' he said.
 
esthert@sph.com.sg
 
LAST week, Malaysia's richest man, Mr Robert Kuok (above), who already controls Allgreen Properties, tabled a deal to buy the rest of the firm and take it private. The stock was trading at a discount of nearly 40 per cent to its book value before the offer. His move sparked interest in spotting the next property counter that may go private, as offers to delist a company sometimes come with a significant premium to the traded share price.
 
ANALYSTS have thrown up property names such as Wheelock Properties, Wing Tai Holdings and GuocoLand as highly likely candidates for privatisation. GuocoLand, in particular, has seen its share price weighed down by litigation relating to its Beijing Dongzhimen project (above) in China. 'Many other property-related stocks are similarly trading at discounts of 30 to 40 per cent to their book values, particularly those with substantial exposure to the residential market due to potential policy headwinds.'



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