Cheong seeks to buy time, gain flexibility

Property developer Simon Cheong Sae Peng has always been known for being unconventional and his approach has served him well, allowing the 55-year-old to build himself a niche in the ultra-luxurious sector of the market and pocket a tidy fortune along the way.

Even so, his decision to take his company, SC Global Developments, private came as a surprise to many. Few thought that Mr Cheong, who already owns 55.06 per cent of the company, had the resources to carry out such an exercise. Buying out his remaining shareholders will cost him some S$335 million.

In light of this, it is worth examining in greater detail some of the factors that may have led him to take this step.

Like most property companies, SC Global trades at a steep discount to its revalued net asset value (RNAV) and with the low liquidity of its shares in the stock market, Mr Cheong has found a listing on the Singapore Exchange unnecessary.

Developer Wheelock Properties Singapore owns some 15.9 per cent of the company and taking into account other holdings, SC Global’s free float is estimated at 22 to 23 per cent.

The stock price has been fairly volatile, with Wheelock having paid as much as S$3 — it was S$6 then but a stock split came along the way — for its initial 10 per cent stake in June 2007. In the aftermath of the global financial crisis, the stock hit as low as S$0.31 in March 2009.

While Mr Cheong’s offer price of S$1.80 a share appears generous, being a whopping 49 per cent higher than the pre-offer last traded price of S$1.205, it is less than half the RNAV of S$3.65 a share, according to DMG securities analyst Goh Han Peng.

That aside, there are other reasons which may have prompted the move.

For one, time is running out for SC Global in its race to sell the remaining apartments at its completed projects such as The Marq on Paterson Road and Hilltops at Cairnhill Circle, Mr Goh pointed out.

Under the Residential Property Act, housing developers whose shareholders and directors are not all Singaporeans have to sell their units within two years of completion. They are not allowed to rent out unsold units.

If SC Global fails to beat the clock, the company faces extension charges of up to 24 per cent of the land cost, which could run into tens of millions of dollars.

As Mr Cheong is a Singaporean, “taking the company private at this stage will enable it to side-step the fee penalty”, noted Mr Goh. He added: “SC Global has been able to establish benchmark pricing for its luxury residential projects and is known to be reluctant to cut prices to move sales, given its belief in the quality of its projects and the high replacement cost of replenishing its land bank.”

Mr Cheong has himself admitted that taking his company private would enable its management to have greater flexibility to manage and plan its residential property business. He has built a global reputation for his ultra-luxurious homes, and it would probably be easier for him to access capital on his own from financial institutions without having shareholders to answer to.

Sound business reasons, then, for his buyout move.

But there are also others, and these should be of some concern to the Singapore Exchange.

As Mr Cheong explained, being relieved of the burden of reporting SC Global’s performance on a quarterly basis, as well as shedding expenses related to a public listing, will enable the company to channel more resources to its business operations.

These gripes over listing and reporting costs are not new — many others have voiced similar concerns.

Even before quarterly reporting was implemented in January 2003, Mr S Dhanabalan, the Chairman of Temasek Holdings and a former minister, had expressed his unhappiness with what he felt was a short-sighted measure.

“I am dismayed that we in Singapore have decided to impose this practice on listed companies ... We seem to have tilted in favour of traders in stocks rather than investors in stocks,” he was reported as saying.

“I am not in favour of quarterly performing, not because of the cost. Any good company must have at least monthly figures of its performance. But having a system that encourages the market to set quarterly targets and that beats the stock up or down according to penny variations from the target does not seem to me to encourage investment,” he said.

With the latest turn of events, perhaps it is time for the Singapore Exchange to review its listing costs and consider relieving the burden of quarterly reporting.