Some publicly-listed developers may consider going private due to stocks trading at huge discounts, weak buying activity in the luxury segment and potential extension charge for unsold units, according to media reports quoting CIMB.
Based on five criteria, there are four candidates for privatisation, namely Wheelock, Ho Bee, Wing Tai and Bukit Sembawang. Of these, the first two have a higher chance of undertaking such a move, the CIMB report said.
“Wheelock fits most of the criteria that we looked at, despite lacking the push factor of extension charge. It is 75.8 percent owned by Hong Kong-listed Wheelock and Company Ltd.”
“The majority shareholder is financially strong with HK$29.3 billion (S$4.8 billion) cash and equivalents and 0.3x net gearing.” Moreover, its valuation is attractive at 0.7 times the Price to Book Value (P/BV) for FY2013 and its Revalued Net Asset Value (RNAV) has a discount of 34 percent. Coupled with its low liquidity and robust balance sheet, it is the most likely candidate for privatisation.
Ho Bee is another developer that fits the bill given its attractive valuation and strong balance sheet with limited need for equity fundraising. In addition, its majority shareholder Ho Bee Holdings has raised its stake from 70.8 percent since April 2013 to 72.6 percent at present.
As for Wing Tai, its majority shareholder owns a smaller stake of about 50 percent, but the company has good incentive to avoid the extension charge. Finally, Bukit Sembawang matches the criteria for low liquidity and cheap valuation. However, there is little need for equity fundraising and its largest stockholder only owns around a 40 percent stake.
Notably, CIMB looked into five criteria: current valuation against historical mean, trading liquidity as percentage of free float, and whether there is any incentive to avoid extension charge by going private. It also determined if there are shareholders that have breached the 50 percent stake, and whether there is a need for equity fundraising (EFR) based on balance sheet strength.
Credits: Property Guru