Tuesday, 22 April 2014


Kim Eng on 15 Apr 2014

  • CapitaLand makes a conditional offer of SGD2.22/share to privatise 65.3%-owned subsidiary CMA.
  • Main rationale: To fully integrate CMA as part of its streamlining exercise and enhance its strength in building integrated developments.
  • Maintain BUY and TP of SGD3.85. A delisting would be positive for CapitaLand but the offer price may be insufficient for CMA’s minority shareholders to bite.
Offer details
CapitaLand’s (CAPL) offer of SGD2.22/share is a 27.0% premium on CMA’s one-month VWAP and a 20.7% premium over its FY13 BVPS of SGD1.84, but a 23.7% discount to our RNAV of SGD2.91. The offer is conditional upon CAPL receiving sufficient acceptances for its stake to exceed 90%, thereby allowing CMA to be privatised.

What’s Our View
This exercise makes sense for CAPL for a number of reasons. First, since its Nov 2009 IPO, CMA has been trading at deep discounts to its RNAV despite its strong execution and steady earnings delivery. If the privatisation is successfully executed, it would be one of CAPL’s most astute acquisitions, allowing it to leverage on CMA’s retail expertise while keeping it as a key earnings driver.

Second, we believe the business streamlining will be positive for CAPL as it would be more synergistic to pursue integrated developments – similar to its suite of Raffles City – under one combined entity, rather than a consortium of related listed entities (eg, Westgate and Raffles City Chongqing).

Third, this is a positive redeployment of the proceeds raised from the recent sale of Australand (~SGD1.5b). Post-acquisition, CAPL’s pro-forma net gearing would rise from 0.39x to 0.59x, which is still comfortable in our view. Pro-forma FY13 EPS would have been 21.5% higher on a post-acquisition basis, while headline ROE would have improved by 1.3ppt to 6.7%.
The only obstacle, in our view, is to achieve enough acceptances. Maintain BUY and TP of SGD3.85 for CAPL.

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