Best Singapore Bid Gets More Lucrative With SC Global: Real M&A

Traffic flows in front of the skyline in Singapore. Photographer: Munshi Ahmed/Bloomberg

Traders are betting the most lucrative takeover offer in Singapore will get even sweeter for luxury property developer SC Global Developments Ltd.

Controlling shareholder and Chief Executive Officer Simon Cheong offered to take SC Global private for S$1.80 a share on Dec. 5, valuing it at S$745 million ($611 million). At 61 percent more than the stock’s 20-day average, it’s the biggest premium for any acquisition of a developer in Singapore on record, according to data compiled by Bloomberg. Since then, SC Global’s second-largest investor, Wheelock & Co., bought shares above the deal price, and the stock closed at S$1.91 last week, indicating traders expect Cheong to pay more.

“Wheelock is not happy with the price,” Gregory Yap, a Singapore-based analyst at Malayan Banking Bhd., known as Maybank, said in a telephone interview. “The signal to Simon Cheong by Wheelock is that S$1.80 is too low.”

Cheong may need to raise his offer by as much as 39 percent to win over shareholders, Yap said. Singapore, which has the highest proportion of millionaire households in the world, has seen demand for high-end homes slump after the government imposed measures aimed at reining in rising prices. Still, sales of luxury units are already improving and volumes may rebound by more than 20 percent next year, said Savills Plc.

SG Global rose for the first time in five days, climbing 1.8 percent to S$1.945 at the close in Singapore. More than 2.1 million shares changed hands on a shortened trading day, three times the daily average in the past six months.

Yo-Yo Ma

Spokesmen for Cheong’s MYK Holdings Pte and Hong Kong-based Wheelock declined to comment on the prospect of a higher bid.

“We would be unable to buy property assets directly at anything like these prices,” Wheelock said in the Dec. 13 statement disclosing its purchase of more SC Global shares for about S$1.9 million.

A former investment banker, Cheong, 55, acquired control of ANA Hotels Singapore Ltd. in 1999, renaming it SC Global in 2000. Branded as “The Ultimate Living,” the company has featured actor Sean Connery and cellist Yo-Yo Ma in its advertising.

Developments include Seven Palms Sentosa Cove, a beachfront condominium with 41 units and a 45-meter infinity pool. The Marq on Paterson Hill features private swimming pools cantilevered outside of the building.

The company has grown along with Singapore’s wealthy population, reporting a sevenfold profit increase in the five years through 2011, data compiled by Bloomberg show. By last year, Singapore had the highest proportion of millionaires of any country, with more than 188,000 such households, or about 17 percent of the city’s total, according to a May report from The Boston Consulting Group.

Asia’s Richest

“SC Global has a very decent portfolio of high-end properties,” Sarah Wong, a Singapore-based analyst at AmFraser Securities Pte, said in a phone interview. “The public’s perception of SC Global’s fair value is probably higher than the figure Simon Cheong has offered, and hence they are not in a hurry to accept the offer. It’s likely that he’ll have to increase the offer.”

Still, sales have slowed after Singapore took steps to discourage speculation in real-estate, requiring foreigners to pay an additional 10 percent tax on property purchases and adding levies on second or third homes. Amid fluctuating sales, SC Global reported losses in three of the four most recent quarters, and earnings are expected to fall 79 percent in 2012, analysts’ estimates compiled by Bloomberg show.

When Cheong made the offer, he said that an unlisted company would have more flexibility if it didn’t have to report results on a quarterly basis and noted that SC Global hasn’t tapped capital markets in at least six years.

Unsold Units

Currently a company with foreign shareholders, SC Global also faces fines for failing to sell units within two years of completing developments. That law is designed to ensure land in Singapore, an island state with a population of more than 5 million, isn’t hoarded for speculation. Owned only by Cheong, a Singaporean, SC Global wouldn’t be subject to the rule.

As of November, the company had launched and sold only 46 of the 241 units at its Hilltops development, which was finished in 2011, data from Singapore’s Urban Redevelopment Authority show. At The Marq on Paterson Hill, half of the 66 units have sold since it was completed in 2011, the data show.

“From Simon Cheong’s perspective, he’s not just selling a piece of air in the sky, he’s selling a lifestyle,” Maybank’s Yap said. “He doesn’t deal in a mass market model.”

The penalties may total S$71.7 million in 2013, according to Yap’s estimates.

Shares Jump

Cheong’s offer was 61 percent more than the 20-day average of SC Global’s share price, a higher premium than any other takeover or management buyout of a property developer in Singapore, data compiled by Bloomberg show.

Over a week later, Wheelock, also a property developer, said its Singapore unit bought more than 1 million SC global shares at about S$1.81, taking its stake to about 16 percent.

SC Global’s shares jumped to as high as S$2.08 during trading last week, ending the week 6 percent above the bid.

“They’re quite clearly saying they think the offer is well below fair value for the assets,” Jason Hughes, a Singapore-based market strategist at IG Markets Ltd., said in a phone interview. “You’d assume that they would be looking at somewhere closer to the region of a S$2.50 or maybe S$2.60 target.”

That range would equate to about a 30 percent discount to SC Global’s revalued net asset value, or RNAV, said Hughes. RNAV estimates the current value of a developer’s assets.

Among analysts in Singapore, the range of targets for SC Global’s RNAV is between S$3 and S$4, said Maybank’s Yap, whose own RNAV estimate is S$4 a share.

Luxury Rebound

Cheong’s offer represents a discount of about 50 percent to the midpoint of that range. Based on previous deals, the CEO should be paying a 30 percent to 40 percent discount, Yap said. That’s as much as S$2.50 a share or as little as S$2.10, he said.

Sales of luxury homes are improving, in part as wealthy Europeans seek to avoid rising taxes on the continent, said Alan Cheong, a Singapore-based director at Savills.

“The crisis in Europe is causing some of these high-net-worth families to set up trusts to tax-plan their wealth, and quite a number of them have bought luxury non-landed properties here,” he said in a phone interview. “Volumes will continue to pick up into the next year.”

Luxury sales volumes may increase to an average of 1,400 to 1,500 units each quarter next year, compared to total sales of 1,168 units in the third quarter, he said.

‘Real Drag’

Stephen Riady, chairman of Overseas Union Enterprise Ltd., which this year made a $10.7 billion bid for Singapore property developer and drinks maker Fraser & Neave Ltd., is planning to develop more high-end homes in the city.

“Worldwide, all the wealthy money is looking at Singapore,” Riady said in an August interview.

With little chance of a rival bidder, Cheong faces no outside pressure to raise his offer, said Bryan Go, an analyst at Phillip Securities Research Pte.

“He can stay put at the current offer,” Go said in a phone interview from Singapore. “They have a good product and they have a good margin but they have not been cutting prices.”

As a public company, Wheelock would remain a shareholder and SC Global would continue to be subject to Singapore’s restrictions and potential penalties on foreign-owned developers. To avoid those penalties and the burden of running a publicly traded company, Cheong will be motivated to raise his bid, Maybank’s Yap said.

“He’s tired of getting pressure from external parties,” he said. “Every quarter he cannot meet his costs, he has to report a loss and make a profit warning. That’s a real drag.”