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Investors find silver lining in privatisations amid property gloom

SINGAPORE — Investors including ABN Amro Private Banking and Baring Asset Management are eyeing Singapore-listed property developers that may be taken private by their parent companies, as 66 per cent of these developers trade at less than the value of their net assets.

Private housing in Singapore. TODAY file photo

Private housing in Singapore. TODAY file photo

SINGAPORE — Investors including ABN Amro Private Banking and Baring Asset Management are eyeing Singapore-listed property developers that may be taken private by their parent companies, as 66 per cent of these developers trade at less than the value of their net assets.

Six developers have been bought out since 2010 at an average share price premium of 26 per cent, data compiled yesterday by Bloomberg showed. In the most recent and largest transaction, Keppel Corp paid about S$2.7 billion last month to buy out minority shareholders of its Keppel Land subsidiary.

Listed developers with just one share in non-Singaporean hands are treated as foreigners under the city-state’s regulations, leaving them open to penalties if they miss deadlines to finish projects and sell apartments.

Under the Residential Property Act, foreign developers need to complete construction within five years of purchasing land and offload all units in another two years after that. If they fail to sell them, they have to apply for extensions and pay charges from 8 to 24 per cent a year on the value of unsold units. The law is designed to ensure that land in Singapore isn’t hoarded for speculation.

The Government’s property cooling measures and loan curbs drove home sales to a six-year low last year, leaving more real-estate companies holding unsold units. Measures since 2009 include a cap on debt repayment costs at 60 per cent of a borrower’s monthly income, higher stamp duties and higher real estate taxes.

“For some of the developers which don’t need funding, privatisation might make sense,” said Ms Daphne Roth, head of Asian equity research at ABN Amro Private Banking, which manages about US$203 billion (S$274.6 billion). “There’s a possibility of more privatisations, especially for the smaller companies where profit will be very much distorted by the charges that they take for unsold properties.”

The controlling shareholder of Wing Tai Holdings may opt to take the company private to avoid such penalties, Maybank Kim Eng analysts said. The developer of luxury homes would face as much as S$211 million in penalties over three years if its units in the Le Nouvel Ardmore and Nouvel 18 projects remain unsold, showed a report from the brokerage.

Other prime candidates for delisting include Ho Bee Land, Wheelock Properties Singapore and GuocoLand, because their share valuations are cheap, according to UOB-Kay Hian analyst Vikrant Pandey. The companies trade at between 0.6 times and 0.8 times their book value, showed data compiled by Bloomberg.

“Why pay levies or sell at rock bottom prices when we can find other ways like going private,” said Mr Donald Han, managing director of property consultancy Chesterton Singapore.

Businessman Simon Cheong privatised SC Global in January 2013 in a deal that valued the luxury homebuilder at S$745 million. The Marq, a premium residential project near Orchard Road, had 52 per cent of units unsold at the time of the offer, said Maybank Kim Eng. The company’s other projects had 26 to 100 per cent of their units unsold at the time, the brokerage said.

“Depressed valuations might be an opportunity for the major shareholders to privatise and enjoy the future upside. Regulations could be another reason to take companies private. That was the rationale in the case of SC Global,” said Mr Lim Soo Hai, a Hong Kong-based money manager at Baring Asset, which oversees about US$40 billion globally.

Ms Lee Hwee Hong, head of corporate communications at Wing Tai, and Wheelock spokeswoman Sylvia Sim declined to comment. Ho Bee and GuocoLand did not respond to e-mail queries. BLOOMBERG

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