SINGAPORE (Oct 29): OCBC Investment Research believes Yanlord Land Group’s mandatory general offer for all the shares in United Engineers (UE) that it does not hold is “unlikely to gain many acceptances”.

China-based property developer Yanlord on Oct 25 had made a $2.60 per share offer to buy over UE, valuing the company at $1.66 billion.

Yanlord now has a 35.27% interest in UE, one of Singapore's oldest companies with businesses in property and hospitality sectors, after buying over Perennial Real Estate Holdings’ (PREH) and Heng Yue Holdings’ stakes in the company for a total of $229.7 million.

See: Yanlord Land revives $2.60 per share offer to buy over United Engineers

This triggered a mandatory general offer for all of UE ordinary shares it does not hold and also a comparable offer for UE preference shares, in line with the Singapore Code on Take-Overs and Mergers.

OCBC notes that the mandatory conditional cash offer price is slightly below UE’s closing price of $2.62 on Oct 25. It is also at a discount 16.7% discount to UE’s net asset value (NAV) per share of $3.12 as at June 30.

According to the brokerage firm, this implies a takeover offer at 0.83 times price-to-book value (P/B). “As such, we believe the acceptance rate for this general offer would be low,” OCBC says.

OCBC notes that the cash offer is conditional upon Yanlord garnering valid acceptances that will result in it holding more than 50% of the total voting rights attributable to the UE ordinary shares.

In any case, the analysts say Yanlord has indicated that it does not plan to delist UE, and that the acquisition is part of its plans to consolidate its interest in the company and strengthen position in Singapore and China.

OCBC has a “buy” call on Yanlord with a fair value estimate of $1.56, representing an upside of 33.3% from its closing price of $1.17 on Tuesday.

According to OCBC valuations, Yanlord is trading at a price-to-earnings (P/E) ratio of 4.1 times and a dividend yield of 4.9% for FY19F.

The counter is currently trading 24.5% lower than its recent peak of $1.55 in April this year.