SINGAPORE (Sept 25): It seems that most minority investors in United Engineers have decided that they are better off hanging on to their shares instead of taking up an offer led by Yanlord Land and Perennial Real Estate Holdings to purchase them at $2.60 each. This came as Oxley Holdings amassed a major stake in UEL, pushing the target company’s stock price above the offer price. The offer, made on Aug 1 and extended until Sept 19, garnered acceptances amounting to just 1.36% of UEL’s outstanding shares.

The big question now is what the major shareholders of UEL will do to realise its value and how quickly those returns will be delivered to minority investors. The bulk of UEL’s value lies in its property assets, but it also has manufacturing, distribution and engineering businesses. Among the property assets in its fold is an uncompleted mixed-development project in Shenyang, called the Shenyang Orchard Summer Palace, which had an appraised value of RMB2,162 million ($442.1 million).

UEL also owns Chengdu Orchard Villa, valued at RMB728.7 million. These properties are being developed by its 67%-owned subsidiary WBL Corp. UEL owns five investment properties in Singapore. The flagship asset is the landmark UE Square. The other properties are 79 Anson Road, Park Avenue Rochester, Rochester Mall & Park Avenue Rochester Hotel, and freehold properties at 50 and 52 Alexandra Road. These investment assets were valued at $1.89 billion in UEL’s books as at June 30. All in, UEL owned property assets valued at $2.546 billion as at June 30. Its net asset value (NAV) stood at $3.02 a share. Its net tangible assets stood at $3.01 a share.

SAC Capital, independent financial adviser to the directors of UEL on the offer, valued the company’s property assets at between $1.293 billion and $1.707 billion, excluding debt. It also applied earnings multiples of comparable companies on UEL’s manufacturing and distribution businesses, and came up with valuation ranges of $39.5 million to $103.6 million and $41.5 million to $48.1 million, respectively, for these units. SAC Capital put UEL’s NAV at between $2.36 and $3.12 a share.

With the offer price at a 10% premium to its lower NAV estimate and a 16% discount to its higher NAV estimate, SAC Capital had said the offer was fair and reasonable. Interestingly, none of the six directors on UEL’s board when the offer was made has accepted it nor sold any of their shares in the market. These directors resigned from the board on Sept 19. On Sept 12, Zhong Sheng Jian, chairman and CEO of Yanlord Land, and Pua Seck Guan, CEO of Perennial Real Estate Holdings, were appointed directors. Zhong is UEL’s new executive chairman.

At the close of the offer, Yanlord-Perennial Investment, the corporate vehicle formed by Yanlord and PREH, held 34.76% of UEL. Most of this was acquired from Oversea-Chinese Banking Corp and Great Eastern Holdings at $2.60 a share, or some $1.5 billion in total, the month before Yanlord-Perennial Investment launched its offer. The shares acquired during the offer period will be returned to shareholders and Yanlord-Perennial Investment will continue to hold the 33.4% from OCBC and GEH.

Yanlord holds a 49% stake in the consortium; PREH holds 45%. The remaining 6% is held by Heng Yue Holdings, a British Virgin Islands company controlled by Chinese investor Kung Chung Lung. Heng Yue held a 27% stake in Raffles City Shenzhen until earlier this year. Raffles City Shenzhen, developed by CapitaLand opened in April and was subsequently divested to private-equity fund Raffles City China Investment Partners III. As at June 30, Raffles City Shenzhen had a valuation of RMB5.05 billion.

Meanwhile, Oxley now holds 14.1% of UEL. Ching Chiat Kwong, chairman and CEO of Oxley, had a deemed interest of 14.1% in UEL through his stake in Oxley, while Oxley’s deputy CEO Eric Low held a deemed and direct stake of 15.12%.

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Another tug-of-war? It remains unclear whether Yanlord, PREH and Oxley will now work together to realise the underlying value of UEL or whether another tug-of-war for the company will eventually ensue. However, UEL could well be a valuable platform for growth for all of these parties.

In fact, Oxley specifically mentions the acquisition of its stake in UEL as well as three local development sites in a recent corporate presentation, and says 2017 marks its “strategic return” to Singapore after a few years of investing overseas in a big way. Yanlord has also indicated interest in gaining a bigger foothold in Singapore. It recently participated in bids for the Central Boulevard and Bidadari development sites, though neither of those bids succeeded.

For now, there is no sign that Yanlord and PREH plan to work with Oxley. Norman Ip, former managing director, says in an emailed statement to The Edge Singapore, “Going forward, UEL will be working with its new major shareholders [Yanlord and Perennial] to create and unlock value of the group’s freehold and long-term property assets through asset enhancement initiatives or redevelopment. The group will also be reviewing and identifying how best to grow or divest non-core businesses selectively while acquiring new development sites or buildings for further growth.” Ip steps down as managing director on Oct 19. He will be succeeded by Roy Tan, chief financial officer of UEL.

WBL conundrum solved The sale of UEL by OCBC and Great Eastern has been a long time coming. It was complicated by UEL’s involvement in the acquisition of WBL Corp in concert with OCBC and Great Eastern in 2013.

Back then, OCBC held 24.77% of WBL and the family of the late Lee Kong Chian held a further 13.46%. UEL did not initially own shares in WBL, but it was the vehicle in the offer. UEL raised its offer price twice, from the initial $4 a share to $4.15, and finally to $4.50, to wrest a major stake in WBL from companies linked to the family of the late Tan Chin Tuan. UEL now holds 67.6% of WBL, which was delisted in February 2014. Most of the rest of WBL is still held by OCBC, Great Eastern and the Lee family.

The total cost to UEL of acquiring WBL, according to its 2013 annual report, was $1.58 billion. Of this, $770.5 million was goodwill. Since 2014, UEL has disposed of six WBL assets for $1.05 billion. They include MFS Technology, Multi-Fineline Electronix, two property developments in China and Wearnes Automotive.

When Yanlord and PREH acquired a 33.4% stake in UEL earlier this year from OCBC, Great Eastern and the Lee family, they also acquired a 10% stake in WBL for $2.07 a share and committed to buying a further 19.9% at a later date. The total purchase cost of these stakes in WBL would be $174 million. If Yanlord and PREH had succeeded in gaining control of more than 50% of UEL, they would have had to make a “chain offer” for the rest of WBL at $2.07 a share, including the WBL shares held by UEL.

While Yanlord and PREH will not have to make a chain offer for WBL now, UEL could still be headed for an interesting period as its new shareholders begin trying to extract value from all its assets.

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