Wheelock Deal Spurs Singapore Property Stocks Buyout Speculation

(Bloomberg) -- There may be a silver lining for investors in Singapore property stocks after recent government curbs fueled a selloff in the sector.

A S$598 million ($438 million) take-private offer for Wheelock Properties (Singapore) Ltd., which sent the stock to its highest level in more than eight years, has stoked speculation of more buyouts in the industry.

Hong Kong-listed Wheelock & Co. proposed Thursday to buy the remaining shares of its Singapore unit for S$2.10 apiece, a 21 percent premium from its closing price on July 13.

Now, analysts say that parent companies of Wheelock’s peers including Wing Tai Holdings Ltd., Ho Bee Land Ltd., Bukit Sembawang Estates Ltd. and GuocoLand Ltd. may follow suit. And shares of both Wing Tai and Ho Bee Land rose by more than 2 percent Wednesday.

“The offer for Wheelock is likely to re-start market talk and expectation of more privatization or M&A,” said Carmen Lee, head of research at Oversea-Chinese Banking Corp. “The current market weakness for property stocks is an opportune time for the key shareholder to take the company private.”

Shares of developers slumped after the city-state’s government moved to clamp down on speculative property demand earlier this month. The tightened rules, rolled out a day after the central bank noted “euphoria” in the property market, sharply increase buyers’ stamp duties for entities such as real estate developers. The FTSE Real Estate Index fell to its lowest level since March 2017 after the announcement.

Investors should look for companies that have “depressed” price-to-book valuations, strong shareholders with a majority controlling interest, lack of trading liquidity, and healthy cash flows, Lee said.

“This has been a long-term ongoing theme for Wheelock as it has been trading, based on price-to-book, among the lowest of its peers and is thinly traded,” said Joel Ng, head of research at KGI Securities (Singapore) Pte. With a strong balance sheet, the company doesn’t need public funds “so there isn’t a need to stay listed and incur costs.”

Both Wing Tai and Ho Bee Land are trading at 50 percent discounts to their net asset values, he added. Companies with price-to-book ratios lower than that of Wheelock’s include Yanlord Land Group Ltd., Sinarmas Land Ltd., Straits Trading Co., GuocoLand Ltd. and Ho Bee Land, according to data compiled by Bloomberg. These companies also have a free float of less than 30 percent, which could make it easier for a privatization deal.

“This is something we saw in 2010-2011,” said Justin Tang, head of Asian research at United First Partners. “If this goes through, then majority owners of property companies that are trading at deep value may privatize their companies.”

©2018 Bloomberg L.P.