SINGAPORE (Oct 28): After The Edge Singapore went to press on Oct 24, an announcement was due to be made on a transaction involving United Engineers. Yanlord Land, Perennial Real Estate Holdings and UE had announced a trading halt on Oct 22. An analyst who does not cover any of the three companies reckons that Yanlord is likely to acquire PREH’s stake in UE. As a result, Yanlord will be required to announce a general offer for all the UE shares it does not own at around $2.80 each.

“PREH has been struggling while Yanlord has made good progress in China and is interested in buying assets in Singapore,” the analyst says.

Yanlord, PREH and Heng Yue Holdings formed a consortium to acquire Oversea-Chinese Banking Corp’s 36.44% stake in UE in 2017 at $2.60 a share, which at the time was at a discount of 13.9% to its then net asset value of $3.02. As at June 30, UE’s NAV was $3.12. Yanlord had the largest share in the consortium, at 49%, which gave it a deemed interest of a 17.9% stake in UE. PREH’s deemed interest in UE is 16.4%.

In a Sept 19 filing by UE, Eric Low, Oxley Holdings’ deputy CEO, bought 42,100 UE shares for $108,447, or $2.57 each, bringing his direct stake to 2.08% and his deemed stake to 21%. On June 19, Ching Chiat Kwong, chairman and CEO of Oxley, paid $12.3 million for 4.77 million UE shares, taking his direct stake to 3.48% and his deemed stake to 22.4%.

On July 5, UE announced that WBL Corp had sold 21.7 million UE shares at $2.58 each, a 17% discount to its NAV, on the open market. Owing to a network of cross-holdings over the past half century or more, UE holds a 67.6% stake in WBL. In turn, WBL used to own a 3.41% stake in UE. Other shareholders of WBL were Straits Trading Corp and OCBC.

UE privatised WBL in 2014 after a tussle for control with Straits Trading. When OCBC divested UE to the Yanlord-Perennial consortium, the latter had to make an offer for WBL and acquired 28.12 million shares at $2.07 each.

In February 2018, after the Yanlord-Perennial consortium had gained control of UE, the latter held an extraordinary general meeting to obtain permission from shareholders to acquire the 19.9% stake, or 55.96 million WBL shares, it did not already own, at $2.07 a share. As the resolution involved an interested party transaction, the Yanlord-PREH consortium could not vote. The resolution was not carried, with an overwhelming 67.44% of shareholders present or by proxy voting against it.

Since then, minority shareholders have written in to the press, including The Edge Singapore, suggesting that Oxley should appoint a director to UE’s board. Despite having the largest single stake in UE, Oxley has been refused permission to appoint a representative to UE’s board.

UE’s performance has stagnated since the Yanlord-PREH consortium acquired its stake in the company. UE recorded a profit of $140.58 million in FY2016, but it dropped to $87.18 million in FY2017, and fell further to $55.76 million in FY2018. For 1HFY2019, UE reported a net profit of $16.1 million, down 20% y-o-y. If this trend continues in the second half of the year, UE will be on track to recording its lowest earnings since the global financial crisis. UE’s dividend per share has also fallen from 12 cents in 2016 to a paltry three cents last year. UE has not announced a dividend so far this year.

No wonder minority shareholders are upset, but whether they will be happy with a general offer remains to be seen, given that the price mooted continues to be at a discount to NAV. 

This story first appeared in The Edge Singapore (Issue 905, week of Oct 18) which is on sale now