Keppel units keep market guessing (Amended)

Singapore

INTENSE speculation gripped the market on Wednesday, after Keppel Corp and its real estate subsidiary Keppel Land halted trading in their shares "pending release of announcement" and called off their scheduled results briefings for analysts and media.

The rumours circulating in the market centred on the potential privatisation of KepLand by KepCorp and corporate restructuring, although other theories also broke surface.

KepLand's briefing was slated for Wednesday before being called off; the company released its fourth-quarter and full-year results via SGXnet later in the evening. KepCorp's briefing was scheduled for Thursday - it will also release its results electronically as scheduled. A spokeswoman for both companies declined to say when the briefings would be held next.

Analysts believe that the briefings were cancelled because the companies wanted to avoid questions on the speculation before they were ready to make a formal announcement.

The speculations started when KepLand hit a one-year high of S$3.65 on Tuesday. Its trading volume also more than doubled to 10 million shares, up from about two to five million shares traded daily last week. Meanwhile, KepCorp closed at S$8.10 on Tuesday, having lost 8.6 per cent year-to-date, due in part to plunging crude prices which widely affected oil-linked counters.

BT had earlier reported the spike in KepLand's share price, with market players attributing it to the anticipation of a special dividend, due to gains from its recently disposed stakes in properties. As it turned out, KepLand did not announce special dividends when reporting its results on Wednesday, and the suspension of KepCorp shares indicated that something bigger was afoot.

An industry observer who did not want to be named said: "I suspect something might have been brewing in the background and The Business Times article sort of triggered the need to halt trading while they were still in the midst of working out whatever they're trying to work out. Their respective share prices (showed) that people are playing the pair trade-off, long KepLand, and short KepCorp."

While privatisation was the most mentioned possible scenario, some thought it unlikely, citing a lack of synergy between the two companies and the high cost of doing so - around S$4 billion assuming the deal is transacted at KepLand's RNAV, or about S$2.6 billion based on its market capitalisation. They also noted the lack of a motivating factor from KepCorp's standpoint.

Others suggested that KepCorp might be looking to divest its 54.6 per cent stake in KepLand to its biggest single shareholder Temasek Holdings. According to Bloomberg data, Temasek owns 21.09 per cent of KepCorp.

"If KepCorp were to sell its stake (in KepLand) to Temasek, especially at an attractive premium, it would be able to raise a large amount of cash which it may need in its existing oil and gas business which is facing headwinds at the moment," the industry observer said.

Wong Yew Kiang, a research analyst at CLSA, posited various other possible scenarios, such as a joint bid both companies are making to acquire distressed developers of integrated projects (eg townships) in China, or a restructuring of jointly held assets such as Keppel Bay Pte Ltd, which owns condominium projects such as Reflections and Corals at Keppel Bay.

Mr Wong said that KepCorp could be divesting its 70 per cent stake in Keppel Bay to KepLand to streamline its business, which is "logical" as it could boost the rig builder's earnings amid weak oil prices. "However, as earnings recognition is likely to be a record high for KepCorp due to earlier contracts, we believe this move could be too early, if this is the motivation."

Others wondered if KepLand was following in the footsteps of SC Global and Popular Holdings where Simon Cheong and Chou Cheng Ngok respectively took the listed companies private to avoid qualifying certificate (QC) extension charges, which are imposed on developers whose directors and shareholders are not all Singaporeans and fail to sell their units within two years of the project completion. The rule applies to all listed developers.

But DMG & Partners Research analyst Ong Kian Lin said QC rules would still apply to KepLand if it went under KepCorp's listed structure. That said, the Keppel Bay land plots are exempted from QC taxes, because the land was bought before the revision to the Residential Property Act in July 2005.

Several also noted that KepCorp's newly appointed CEO (with effect from the start of 2014), Loh Chin Hua, is a 25-year property veteran and could be looking to restructure the group's portfolio. He founded Alpha Investment Partners, KepLand's property fund management arm, and before joining Keppel in 2002, was leading Prudential Investment Inc's Asian real estate fund management business.

READ MORE: KepLand Q4 profit down; talk of deal with KepCorp

An earlier version of this article said that Loh Chin Hua was appointed KepCorp CEO at the start of 2015. It should be at the start of 2014. The article also said that the Keppel Bay land plots are exempted from Qualifying Certificate taxes because they have been granted a special status by the government. This is inaccurate. They are exempted as the land was acquired before the revision to the Residential Property Act in July 2005. The article has been amended to reflect this.