Published January 9, 2009

Chartered soars as sale talk resurfaces

Early stake sale by Temasek seen unlikely given poor market conditions

By JAMIE LEE

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CHARTERED Semiconductor Manufacturing shares surged as much as 43 per cent yesterday as old rumours of Temasek Holdings selling the company resurfaced, brokers said.

Price lure: Analysts say that Chartered is an attractive takeover target, given its record low valuations in terms of price-to-book ratios

An industry watcher said that Temasek - the Singapore investment company which has, as at March 31, 2008, a 59 per cent interest in the foundry chipmaker - has had early talks with suitors but poor market conditions stand in the way of a sale.

'If there's a sale, it wouldn't be so soon,' a source familiar with the situation said, adding that a sale now is unlikely to fetch a good price.

The rumours that swirled in the market were also said to have turned into a 'self-fulfilling prophesy' as offers started to come through on the belief that Temasek is willing to sell its stake.

The source told BT that there are also concerns, such as the level of job cuts, that need evaluating before more intense talks can proceed. 'It's not so simple. There are things to consider,' the source said.

It is unclear who the potential buyers are, but analysts and media reports had earlier cited Taiwanese firms Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corp (UMC) as possible suitors.

Analysts said that Chartered is an attractive takeover target, given its record low valuations in terms of price-to-book ratios. Chartered trades at about 0.24 times its book value.

'With an enterprise value of $2 billion, a potential buyer would be getting Chartered's wafer fabs at a price far below replacement cost,' wrote DBS Vickers analysts Tan Ai Teng and Suvro Sarkar in a December report.

Most of Chartered's borrowings are due in 2010, though short-term borrowings of the company are manageable for now, analyst Jonathan Ng from CIMB-GK told BT.

He added that one of the rumoured buyers, TSMC, may not be looking to buy a strategic partner, given its top position in the contract chip-making business globally. Instead, it is likely to be looking to absorb a competitor so as to streamline operations and save on costs.

But one analyst from a foreign bank dismissed the market talk, saying that investors are merely chasing this laggard stock. He added that shares of sector peers TSMC and UMC had rallied last month as fears of bankruptcy among technology firms started easing.

Amid falling demand, Chartered has warned that it would report a net loss of between US$76 million and US$84 million for the fourth quarter ended Dec 31, 2008. It registered a net loss of US$24.4 million in its previous quarter.

The stock gained nine cents to end at 30 cents yesterday against a broad market decline. The Straits Times Index ended down 2.82 per cent. Chartered was the second most heavily traded stock, with 89.8 million shares changing hands. Brokers said that the rumours are circulating again because investors have observed Temasek's recent M&A activities and speculate that a deal for Chartered is on the table.

Recent deals done by the Singapore investment company include the sale of its majority stake in Singapore Food Industries to Singapore Airport Terminal Services at the end of last year.

Investors are also taking this old talk for a spin because the market is lacking catalysts, said a broker with a local bank.

When queried by the Singapore Exchange on the stock's price and trading volume surge, Chartered said that it was unaware of the reason behind the rise.

TSMC and UMC did not respond to queries by press time. Temasek itself does not normally comment on market speculation.