PROPERTY player Chip Eng Seng&rsquo s independent financial adviser (IFA) Xandar Capital on Tuesday (Dec 27) said terms of couple Gordon and Celine Tang&rsquo s offer to privatise the company at S$0.75 per share are fair &ldquo on balance&rdquo when asked to elaborate on how it concluded that the deal is &ldquo fair and reasonable&rdquo .

 

The final offer consideration represents a discount of approximately S$0.5863 or 43.9 per cent to the revalued net asset value (RNAV) per share of S$1.3363, drawing queries from the Singapore Exchange Securities Trading (SGX-ST).

 

Responding to SGX-ST, Xandar said that while the discount to RNAV per share is high, it came to the conclusion that the offer is fair since the &ldquo against&rdquo factors did not outweigh the &ldquo for&rdquo factors.

 

Supporting the &ldquo for&rdquo side are eight factors with financial metrics equal to or above the value or valuation of Chip Eng Seng&rsquo s shares, it said. Only three factors fall below the value or valuation of the shares, and are against the fairness of the consideration, it added.

 

Each of the factors underlying the opinion has values assigned to the shares, including valuation statistics such as premium or discounts to volume-weighted average price, price-to-earnings (P/E) ratio, and price to net asset value (P/NAV), Xandar said.

 

As for its consideration on whether the offer is reasonable, the IFA said it &ldquo should consider other matters&rdquo , including the existing voting rights of the offeror and its concert parties, and the market liquidity of the offeree securities.

 

Xandar, meanwhile, highlighted a few &ldquo for&rdquo factors as set out in a letter to the recommending directors in respect of the offer.

 

Its comparison between the P/NAV ratio implied by the consideration and the trailing P/NAV ratios of the shares &ldquo clearly depicts&rdquo that the former is higher than the latter between Oct 18, 2019, and Sep 8, 2022, which is the holding announcement date, it pointed out.

 

It also stated that the P/RNAV ratio of the company as implied by consideration is within the range and higher than the mean and median P/NAV ratios of comparable companies which have not taken into account RNAV adjustments, if any.

 

&ldquo Hence, the IFA is of the opinion that, as of the date of the IFA Letter, the terms of the offer, on balance, are fair,&rdquo it said.

 

On why it had used the last six months of 2021 and first half of 2022 to calculate the P/E ratio and other figures, Xandar reasoned that it is &ldquo in line with industry practice&rdquo to use trailing 12-month results.

 

The IFAs appointed in the recent takeover offers of Singapore Medical Group, Silkroad Nickel and GYP Properties had adopted the same practice, it pointed out.

 

It also said that it is not possible for the IFA to make calculations since the company&rsquo s current financial year has not ended, as it will entail having to make a forecast. Chip Eng Seng&rsquo s financial year ends on Dec 31, it noted.

 

Meanwhile, a separate bourse filing on Tuesday revealed that as at 6 pm on Dec 27, the offer has received valid acceptances amounting to over 481.3 million shares, representing about 61.4 per cent of the total number of shares.

 

As at 6pm on the same day, the Tangs had received valid acceptances of 405.68 million shares, or 51.73% of the total number of issued shares. The figure includes acceptances received from the Tangs&rsquo concert parties of about 386.37 million shares, or 49.27% of the total number of shares in Chip Eng Seng.

 

&ldquo Accordingly, the offer has become unconditional in all respects,&rdquo says United Overseas Bank (UOB), which is acting on behalf of the Tangs through their company Tang Dynasty Treasure.

 

Should an offer become or is declared unconditional, the offer must remain open for acceptances for at least 14 days more. As such, the closing date of the offer is extended to 5.30pm on Jan 19, from Jan 5.

 

The Tangs first announced their intention to acquire more shares in Chip Eng Seng that they don&rsquo t already own on Nov 24.

 

If they gain more than 90% of the shares in the company, they will exercise their right to acquire the remaining shares and delist the company.

https://www.theedgesingapore.com/amp/news/offer/tangs-offer-chip-eng-seng-turns-unconditional
 

 

TWO units of Chip Eng Seng Corp : C29 +0.67% have granted entities of an Australian real estate fund management group options to purchase (OTPs) its hotel property and business in Western Australia for A$18 million (S$16.5 million).

 

Chip Eng Seng had purchased the assets in 2017 for A$15 million. It granted the OTPs to Acure Funds Management and MF Hospitality Management, both part of the Acure Asset Management real estate funds management group, which is headquartered in Perth.

 

The assets being disposed of are a strata hotel property and strata restaurant property located at 1 Marco Polo Drive in Mandurah, and the hotel business known as The Sebel Mandurah.

 

The properties are situated on a freehold site and have a total land area of approximately 6,712 square metres. The site houses a mixed-use strata development comprising a seven-storey strata-titled building, a waterfront restaurant and high-end residential apartments.

 

The deal &ldquo presents an opportunity for the group to unlock the underlying value and capitalise its investment in the sale assets without incurring significant additional capital investment&rdquo , Chip Eng Seng said in a Thursday (Dec 15) filing.

 

&ldquo The proposed disposal will allow the group to recycle the capital arising from the net proceeds of the sale for its working capital purposes and/or to pursue opportunities which have better upside potential,&rdquo it added.

 

The option is valid up till Feb 10, 2023, unless extended to Feb 17. The option fee is A$300,000.

 

A MAJOR shareholder is again trying to buy up an unloved listed property group at a discounted price. Gordon and Celine Tang are making an offer for Chip Eng Seng : C29 0% (CES), with an eye to privatising it.

 

As a shareholder of CES, I intend to reject the offer because the price is too low. The couple&rsquo s Tang Dynasty Treasure made a final offer of S$0.75 cash per CES share. And the offeror will exercise its right of compulsory acquisition to buy up all the shares of CES if it hits the 90 per cent shareholding mark.

 

The offer price is at a discount of 24 per cent to CES&rsquo net asset value (NAV) per share of S$0.9906 as at end-June 2022. The group&rsquo s NAV could be conservative. CES has an exciting property development pipeline in Singapore, where demand drivers for private homes and Grade A office space are strong. The group&rsquo s construction business is profitable, and better days may lie ahead for its hospitality business.

 

Conservative book value

The group&rsquo s top profit contributors for the first half of 2022 were property development and construction, which posted segment profits of S$48.5 million and S$16.3 million, respectively.

 

In property development, CES can look forward to more contributions from sales of homes in its Singapore projects. Kopar at Newton has sold most of its units and Parc Komo in Changi is fully sold. Both these projects are likely to be completed in 2023.

 

CES is participating in redeveloping Maxwell House in the Central Business District (CBD) into a commercial and residential mixed-use development.

 

Earlier this year, the group bought an effective interest of 10.5 per cent in 8 Shenton Way in the CBD. This property is being redeveloped to include retail, office, hotel and residential components. It will be Singapore&rsquo s tallest building, with a height of 305 metres spanning 63 storeys, when completed in 2028.

 

CES is also involved in the en bloc acquisition of Park View Mansions in the Jurong area. This housing project can cater to the strong demand for suburban homes in Singapore.

 

CES&rsquo hospitality business made losses in the first six months. But the recovery of travel should now buoy this hospitality portfolio, which comprises one hotel in Singapore, a resort in the Maldives and two hotels in Australia.

 

The group is also developing a new hotel in Australia and a new resort in the Maldives. The hotel in Singapore, at Alexandra Road, is being refurbished and targeted to open in the first quarter of 2023 as Momentus Hotel Alexandra.

 

Celine Tang is chairman of CES. Together with her husband Gordon, the Tangs hold over 49 per cent of CES shares. The couple have undertaken to accept the offer for the shares they hold or control. Recently, the Tangs succeeded in privatising another property group, SingHaiyi Group, at a discount to book value. SingHaiyi was delisted in January 2022.

 

Sending a clear message

CES is hardly alone among property companies in trading poorly relative to book value. By spurning a low-ball offer from the Tangs, CES shareholders can help investors of other listed property groups.

 

Major shareholders of asset-heavy groups may be thinking of privatisation as a way to resolve share price undervaluation. A clear message can be sent to major shareholders of groups such as Frasers Property : TQ5 +0.54%, GuocoLand : F17 0%, Ho Bee Land : H13 +0.84% and Wing Tai Holdings : W05 +0.67% that privatisation offers at substantial discounts to NAV will fail.

 

In September, a sufficient number of stapled securityholders of Frasers Hospitality Trust : ACV +1.14% (FHT) rejected a privatisation bid above book value made by a unit of its sponsor Frasers Property. FHT has since traded well below the offer price.

 

If many other shareholders think as I do, and reject the Tangs&rsquo offer, CES&rsquo share price could trade below the S$0.75 per share offer price in the near term.

 

This offer price is 4.2 per cent higher than the initial offer price of S$0.72 a share. It represents a premium of 26.5 per cent and 42.6 per cent, respectively, over the three-month and 12-month volume-weighted average price up to and including Sep 7, 2022 (being the date CES issued a holding announcement). Also, the offer price is 19 per cent above the issue price of the rights shares of CES that were issued in 2019.

 

CES shares closed at S$0.75 on Tuesday (Dec 13).

 

Still, patient shareholders could see CES&rsquo NAV per share grow if the group&rsquo s investments in various development projects pay off. Shareholders can also hope to receive juicier offers to buy up CES in future.

 

If the Tangs do not reach the 90 per cent needed to privatise CES this time round, they may try privatising at a higher price later on.

 

Meanwhile, CES shareholders will benefit if regulations are tightened to compel offerors to pay at least book value before they can exercise the right to buy all the shares of a listed entity.

 

CES works with SingHaiyi in numerous joint ventures. With CES as a private entity, the Tangs could potentially optimise and streamline resources to improve operational efficiency. Privatising CES makes sense for the Tangs. And the couple, being astute business persons, can be opportunistic in a volatile equities market.

 

CES shareholders, however, deserve a deal that better reflects the value of its business. Investor interest and faith in the local bourse are best served when investors are fairly treated.