In a move aimed at sharpening the focus of Singapore's port operator, PSA Corp, the company announced on Friday that it was divesting four non-core companies and selling them to Temasek, PSA's 100% owner. The move is the latest such divestment after a similar exercise in 2000 saw PSA transfer its property assets to Temasek.
The four companies being transferred are: CIAS International: one of two licensed airport terminal service providers at Singapore Changi Airport providing ground, cargo and passenger handling services as well as security and catering services. Singapore Cruise Centre; A new company to take PSA's cruise assets including the Keppel and Tanah Merah ferry terminals and the cruise center, a hub for 31 cruise lines and 41 vessels. PSA Exhibitions: An event management company, which oversees trade shows and exhibitions such as the Singapore Expo and CommunicAsia. Singapore Cable Car - PSA holds 50% of this company, which runs the cable car systems between Mount Faber and Sentosa.
Temasek will be paying a price determined by the net tangible asset (NTA) value for these companies. According to sources within PSA, these assets had an NTA of S$182 million as of December 31, 2002. The assets will be transferred on March 31 and the NTA will be worked out then to determine the final price.
According to spokesman at PSA the valuation method was chosen as, "it is the most practical, expedient, cost effective and objective way to value our assets." However the two companies are not using any independent valuers to arrive at the NTA, rather the, "transfer price was made in consultation with our shareholder."
In an interview with Singapore's BusinessTimes, PSA's CEO, Ng Chee Keong, is quoted as saying that the assets being divested contributed S$250 million to the annual turnover in 2002 and 10% of the bottom line. Given that 2002 earnings are likely to be inline with 2001 earnings of S$732 million, then a 10% figure equates to around S$73 million of profit.
That means the four assets being sold have an operating margin of around 30%. Moreoever the price being paid is likely to be around two and a half times earnings. For PSA that cheap price is presumably what they have to pay for being allowed to do the deal.
It is unlikely that Temasek will want to keep these assets on its book for very long. They are neither strategic nor are they possible international champions, the two criteria set out in last year's Temasek Charter for Temasek to stay interested in its companies. Therefore if another divestment is on the cards, Temasek will surely be able to get a higher price than two and a half times earnings.
As well as having no independent valuers for the transfer price, neither Temasek nor PSA are believed to have taken any advice from bankers or consultants on this deal. This renewed divestment process could mean that PSA Corp's long postponed IPO could be back on track.
Analysts say the company is bouncing back from a torrid few years which saw its core port business come under attack from declining levels of world trade and new ports being built in Malaysia and other South East Asian countries. Investors are likely to want to invest in just such a story rather than a port company with exposure to trade show and cable car businesses.