Infrastructure-to-property conglomerate Keppel Corporation announced two separate acquisitions worth a combined S$1.8 billion ($1.3 billion) on Monday that could potentially lead to the removal of two more listed companies from the Singapore stock exchange.
The bigger of the two deals is a general voluntary offer for shares in M1, the smallest of Singapore’s three telecom operators by number of subscribers.
Keppel is making an all-cash joint offer with Singapore Press Holdings (SPH) for the 67% stake they do not already own in the company, which is worth about S$1.6 billion based on the offer price of S$2.06 per share.
At the same time, Keppel is offering to pay S$224 million to buy out the remaining 21% stake it does not already own in its listed infrastructure unit Keppel Telecommunications & Transportation (Keppel T&T) through a scheme of arrangement.
The buyout of Keppel T&T can be considered part of the M1 transaction since the infrastructure unit owns 19.3% in the telco. However, Keppel said the two transactions are independent and are not conditional upon each other.
Keppel has made it clear it will delist Keppel T&T if the buyout is successful. It did not mention whether it intends to keep M1 listed but will be required to make a compulsory offer to fully acquire the rest of the company if it accumulates over 90% of M1’s outstanding shares through the voluntary offer. So it is very possible that it too will be taken off the stock market.
The two potential take-private transactions are a worrying sign for the Singapore Exchange (SGX), which has lost a number of high-profile companies while struggling to attract prominent listing candidates.
In recent years the Lion City has witnessed multiple billion-dollar take-private cases, most notably the S$16 billion delisting of Global Logistics Properties in 2017. The city’s metro operator SMRT, homegrown logistics firm CWT, massage chair maker Osim International and budget airline operator Tiger Airways are among the other prominent names that have also been taken off the stock market.
The delisting of these companies, together with the lack of a healthy pipeline of initial public offerings, has hurt SGX’s already shrinking market liquidity and undermined its ambitions to become a regional exchange rivalling Hong Kong.
Based on market cap data from the World Federation of Exchanges, SGX-listed companies in aggregate were worth 17% of their Hong Kong peers at the end of August, compared with 21% three years earlier. And while this largely tells a story of just how much Hong Kong has benefited from mainland Chinese companies making a beeline for it, it also party reflects some shrinkage on the Lion City bourse.
According to exchange data, there were 745 companies listed on the SGX as of the end of August this year compared with 771 three years earlier.
SGX’s situation is all the more challenging now that neighbouring emerging markets in Southeast Asia, most notably Indonesia and Vietnam, are expanding their domestic capital markets to support the fundraising needs of local companies.
STRUGGLING TELCO
Keppel and SPH, which are offering to buy M1 shares through a 80/20 joint venture, are taking the telco private when the shares are trading at their lowest price over the past decade.
M1 is the biggest victim of a price war between itself and larger rivals SingTel and Starhub as the trio compete for market share in the city's highly saturated fixed line and mobile market.
Competition is expected to get stiffer with Australian telco TPG Telecom set to launch mobile services by the end of this year after securing a license to become Singapore's fourth telco in December 2016.
Keppel believes it can transform M1’s business by taking majority control.
“Notwithstanding the challenges currently facing the industry, we see considerable potential in M1 and have developed a transformation plan to sharpen M1’s competitiveness,” Keppel chief executive, Loh Chin Hua, said in a letter to shareholders.
“Incorporating M1’s capabilities and two million customers in a combined digital platform would provide opportunities for synergies and cross-selling of services.”
Keppel is offering existing M1 shareholders S$2.06 per share, representing a 26% premium over M1’s $1.63 closing price before the stock was suspended from trading on Monday. Keppel said the offer values the telco at 14.3 times earnings for the financial year ended June 30 and 7.6 times EV/Ebitda.
Keppel is currently M1’s second-largest shareholder with a 19.3% stake and SPH the third-largest shareholder with 13.5%. Axiata, Malaysia’s largest telco, is the biggest shareholder with 28.7%.
The offer will be valid if the offerors jointly accumulate a stake of more than 50% in M1. Since Keppel and SPH already own 33% combined, this means getting at least another 17% stake if the order is to proceed.
The transaction has already been cleared by the Monetary Authority of Singapore but is still subject to approval from the Info-communications Media Development Authority.
DBS is advising Keppel on the transaction. Credit Suisse is advising SPH.
KEPPEL T&T
At the same time, Keppel wants to take its century-old subsidiary private to simplify its corporate structure and improve the efficiency of capital and resource allocation across the group.
Keppel T&T, founded in 1890 as a partnership between British and Chinese interests in Malacca to provide regional and coastal shipping services, is one of Keppel’s three listed subsidiaries alongside real estate investment trusts Keppel-KBS US Reit and Keppel DC Reit.
Keppel is paying Keppel T&T shareholders S$1.91 per share, representing a 40% premium over the last traded price and 24% over the firm’s net asset value of S$1.54 per share as of the end of June.
The company said the offer also presents an exit opportunity for Keppel T&T shareholders who are cautious of the prospects of M1 in the face of heightened competition.
Keppel’s offer is conditional on at least 75% acceptance from minority shareholders. It aims to dispatch the offer document in 9 weeks’ time and close the offer by the end of the year.
DBS is the sole financial adviser.
