Monday, January 26, 2015
Keppel Land: The market has spoken. Share price of Keppel Land (KPLD), the privatisation target of parent Keppel Corp (KEP), gapped up this morning to $4.52, surpassing the higher effective offer price of $4.46 ($4.60 less $0.14 dividend), making the cash offer irrelevant. We postulate some reasons why market has responded as such: 1) The base offer price of $4.38 (effectively $4.24, less the final dividend) and higher privatisation offer price of $4.60 are at 12% and 7% discounts to the book NAV of $4.95, and at a steeper 16-20% discount to street RNAV of $5.48, which are at the low end of recent privatisation offers. For instance, CapitaLand acquired CapitaMalls Asia in July 2014 after paying a 26% premium to its NAV. 2) KPLD traded to a peak of $7.00 in 2007 prior to the global financial crisis and there could be long term investors who purchased at those levels and are unwilling to throw in the towel at the offer prices. 3) Judging by today’s price action, there could be big investors or interested third parties who may be `blocking’ the privatisation deal, perhaps unconvinced about the merits of merging KPLD with its parent and wanting to keep the listing status of KPLD. Given that KPLD is now trading above the higher effective offer prices by KEP, shareholders who wish to take profit, or are concerned about the uncertain property outlook in Singapore and China, should consider selling into the market, bearing in mind that should the privatisation fail, prices may correct back to pre-offer levels.