• Analysts said SPH shareholders stand to gain the most out of Keppel Corp’s offer to acquire and privatise the firm’s non-media businesses
• SPH shareholders would be left holding units in two real estate investment trusts, they said
• The deal helps Keppel as it would not take on too much debt, they added

SINGAPORE 一 Shareholders of Singapore Press Holdings (SPH) seem to be the biggest beneficiaries from an offer by Keppel Corporation to acquire and privatise what’s set to be left of the company after its media assets are hived off, said analysts.

They also agreed that the way the deal is structured, whereby SPH would distribute 45 per cent of its stake in SPH Reit (real estate investment trust) totalling S$1.2 billion, would help Keppel avoid taking on too much debt.

Some downsides, however, are that Keppel would be exposed to SPH’s cash flow issues and the risk that its digital businesses may not be monetised.

In a research note by UBS Securities, analysts Cheryl Lee and Rachael Tan said that this deal “appears more attractive for SPH than it does for Keppel shareholders”.

Associate Professor Lawrence Loh from the National University of Singapore Business School said that SPH has to make the deal attractive to shareholders given that their approval is needed for the transaction to go through.

“What is on the table is more than appealing, I think it’s almost irresistible... SPH shareholders can now hold two reits,” he said, referring to an element of the deal that includes SPH shareholders receiving units in Keppel Reit.

Reits own a portfolio of property investments, receive income from the rent, and make regular payouts to unit-holders, similar to dividends.

Mr Derek Tan, property analyst at DBS Group Research, said that this privatisation means that it would not be a total exit for SPH shareholders.

“(It) allows SPH shareholders to participate in the longer term growth of the jewel of the company which is SPH Reit,” he said.

Both companies announced the proposed deal on Monday (Aug 2) after calling for a trading halt in the morning.

In addition to the distribution of SPH Reit shares to SPH shareholders amounting to S$1.2 billion, Keppel will be offering S$2.2 billion to buy all of SPH’s shares, bringing the total deal to S$3.4 billion.

The S$2.2 billion comprises a cash offer of S$1.08 billion as well as 26 per cent of Keppel Reit units worth S$1.16 billion.

If the deal goes through, shareholders will be getting S$2.099 per share, comprising 66.8 cents, 0.596 Keppel Reit unit and 0.782 SPH Reit unit.

The announcement comes almost three months after SPH announced that it will transfer its media assets to a wholly owned subsidiary, SPH Media Holdings, which itself would be transferred to a public company limited by guarantee (CLG).

Assoc Prof Loh added that this deal also ensures that shareholders would most likely vote for SPH’s media business to be transferred to the CLG, given that Keppel’s offer is contingent on the spinoff taking place.

Analysts also agree that Keppel’s acquisition of SPH would be beneficial to the conglomerate given the synergies of SPH’s assets to Keppel’s growth strategies.

In a press briefing on Monday, Keppel’s chief executive officer Loh Chin Hua said that the privatisation of SPH is a “rare and unique opportunity” that is not only financially attractive for Keppel, but strongly aligned with its business models and capabilities.

With SPH’s portfolio under Keppel, it could potentially increase the value of Keppel’s assets under management by 27 per cent to S$47 billion.

He added that Keppel would also gain entry into purpose-built student accommodation and expand senior living assets.

These assets, in particular student housing, are attractive candidates to grow Keppel’s assets under management and are ready for monetisation either immediately or within the next three years.

Despite this acquisition, Mr Loh said that progress in other asset monetisation, recurring income from operations and planned capital recycling of SPH assets would still provide Keppel with “sufficient firepower” for more investments and deals in other growth segments such as renewable energy and decarbonisation solutions.

However, Mr Tan said that Keppel’s balance sheet is fairly stretched and that it cannot take on too much debt.

Its chief financial officer Chan Hon Chew said that the deal will be funded through asset monetisation plans as well as internal cash and borrowings.

If Keppel offered only cash in this acquisition, it would be forced to take out cash from its bank or borrow from banks, said Mr Adrian Loh, head of research at UOB Kay Hian.

This would mean that Keppel’s gearing ratio, which measures a company’s equity to debt, would exceed one, which would be “anathema to the company and its shareholders”, he said.

A ratio over one means debt is greater than equity.

Mr Loh said during the briefing that the gearing ratio would remain below one with the takeover.

However, Mr Tan pointed out there may be some downsides for Keppel. For one thing, SPH assets, which include retail malls such as Paragon, are still impacted by the Covid-19 pandemic, and hence its cash flow is not stable.

With Keppel absorbing these assets, it would face some form of weakness in the next six months, he added.

In addition, SPH digital businesses, which include investments into sgCarMart, have not yet been valued by the market and it is unclear how fast Keppel would be able to monetise these assets.

Both SPH and Keppel Corp shares are due to resume trading on Tuesday.

SPH shares have gained strongly over the past year to be trading at S$1.88 on Friday after lows of about S$1 late last year.

Keppel Corp has had a somewhat bumpy year, and is trading at S$5.49 after a low of about S$4.10 in October last year.