SINGAPORE (Nov 25): Oxley Holdings has thrown in the towel in its bid for a stronger say in United Engineers, ceding ground to Yanlord Land Group, which has gained tighter control as a result.
When Oxley began buying up shares in UE just as Yanlord and its concerted parties assumed control, the market was stirred by the prospect of a bidding war. That was not to be, as the Yanlord-controlled board rebuffed calls to give Oxley board representation and held steadfastly to its stake.
On Nov 15, Oxley sold 62 million shares in UE for a total of $167.5 million on the open market. With the sale, it is left with just below 58.6 million shares, or a 9.19% stake, according to UE’s Nov 18 filing. No additional filings have been made as at press time, but The Edge Singapore understands that Oxley subsequently sold all its UE shares.
Besides the UE shares held by Oxley, its executive chairman, Ching Chiat Kwong, separately holds a direct, personal stake of 22.2 million, or 3.49%. Oxley’s deputy CEO, Eric Low, holds 14.1 million shares, or 2.21%. As at Nov 21, it was not clear yet whether Ching and Low had sold their personal stakes as well.
The UE shares sold by Oxley on Nov 15 had ended up with Yanlord, which bought 59.9 million shares at $2.70 each that day. The price was the same as that in the revised offer made by Yanlord, which had earlier made a mandatory general offer for UE at $2.60.
The offer was made on Oct 25, after Perennial Real Estate Holdings, Yanlord’s partner in the UE investment, sold its stake to Yanlord, thereby bringing Yanlord’s stake above 30% and triggering a compulsory general offer.
After the Nov 15 transactions, Yanlord now owns 51.47% of UE. As this has crossed the 50% threshold, Yanlord’s offer for UE has turned unconditional.
On Nov 18, Oxley said that its total cost of buying the UE shares was $323.8 million. With the sale on Nov 15, the total cost had dropped to $157.3 million. The market value of the remaining shares is just over $158.1 million.
The aggregate acquisition price of UE shares owned by Oxley is now 10.45% of Oxley’s net tangible assets as at June 30, down from 21.52% previously.
Some investors cheered Oxley’s willingness to move on from UE. They see the fight for UE as unwinnable, given Yanlord’s deeper pockets. Oxley can use the proceeds to either pay down its debt or fund new projects elsewhere.
For months, certain investors had grumbled that UE’s controlling shareholders were not exactly working for the best value for all the shareholders.
They asked why a tranche of 21.7 million UE treasury shares, a 3.14% stake, was sold to an unnamed party at $2.58 apiece — below what Oxley paid for its open-market purchases.
For investors, the draw of UE is not its recent earnings, but its property portfolio, which has the potential for further value to be unlocked. As at Sept 30, UE’s net asset value per share was $3.22 — a discount of more than 16% to the Nov 21 closing price of $2.69.
A key UE asset is its 83% stake in UE BizHub City, sitting on a 999-year leasehold site on prime River Valley Road. On Nov 21, City Developments and CapitaLand announced plans to jointly redevelop the Liang Court mixed-use development, which is across the road from UE BizHub (see “Liang Court redevelopment could yield windfall for joint venture”).
UE’s earnings, however, have been on a downtrend. It reported earnings of $16.1 million for 1H2019, down 20% y-o-y. If this continues, UE will be reporting its lowest full-year earnings in more than a decade.
In line with the lower earnings, UE, under Yanlord’s control, has been cutting its dividends. For FY2016, it paid 12 cents. This was slashed to four cents for FY2017 and three cents for FY2018.