Published May 18, 2009

Privatisation deals see lacklustre response in poor market

But recent rally may force re-look of such plans, offer prices

By JAMIE LEE

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(SINGAPORE) It used to be exciting stuff when companies were taken private - more so if it involves the exit of a household name or high-profile company.

Some notable transactions in the Singapore market include the $1 billion buyout of MMI Holdings by takeover artiste Kohlberg Kravis Roberts & Co some years back, the $785 million privatisation of Unisteel about a year ago, and Dubai-based Al-Futtaim Group's $600 million move on Robinsons, also in 2008.

Outside buyers aside, parent companies too have acted - driven by a desire for more freedom to run their listed subsidiaries or unhappiness over the poor valuation of their units.

Examples were Keppel Corp's privatisation of Keppel Fels Energy & Infrastructure and Keppel TatLee, and Fraser & Neave's delisting of Centrepoint Properties and Times Publishing in 2001.

But all that has changed - no thanks to the credit crunch.

'(I'm) not hearing very much in terms of privatisation deals,' said executive director of Kim Eng Holdings Ong Seng Gee.

More critically, with the markets on Prozac, recent offers have been pegged to poor valuations that fail to entice investors, market watchers told BT.

'Major shareholders are taking advantage of the market conditions to offer low premiums,' said one dealer.

With the recent rally though, some major shareholders could be prompted to re-look their privatisation plans, including a revision of offer prices.

One market watcher said that with the sudden burst of enthusiasm in the market, companies looking to go private might review their offer prices.

But this would be weighed against the outlook of the industry and whether the market has undervalued its business.

A banker from a local lender said: 'If rising prices of blue chip and large cap counters spill over to the second liners where the bulk of the privatisation (deals) is likely to occur in the coming months, those who are considering privatisation may either change their minds or raise their offer prices if share prices go back to 70 per cent or 80 per cent of their peaks.'

One market watcher believe that some funds holding illiquid stocks that are being privatised might now consider cutting losses and moving their money into stocks that could ride on the recovery.

Privatisation makes sense for some companies, since the listing status is no longer a good means to raise funds.

'It defeats the purpose,' said another dealer, adding that the company might want to save on the listing compliance costs during the economic downturn.

Recent deals in the market include that of Kingboard Copper Foil, which received an offer from its parent firm to take it private through a cash offer, share swap or combination of both.

The Hong Kong-listed company will buy each Kingboard Copper Foil share for 21 cents or offer 0.374 of a new Kingboard Laminates share of 10 Hong Kong cents each in exchange for one Kingboard Copper Foil share.

Assuming an all-cash offer, the deal values the company at a 16.7 premium to the last closing price before the offer.

Last week, the controlling shareholder of CK Tang also mounted its third attempt in five years to delist the retailer.

The Tang family - which owns 86.61 per cent of the firm through brothers Tang Wee Sung and Tang Wee Kit - has offered to buy the remaining shares that it does not own at 83 cents per share. This represents an 18.6 per premium to its last traded price before the announcement was made.