This article first appeared in The Edge Malaysia Weekly on October 29, 2018 - November 4, 2018
ALTHOUGH the market seems to have reacted positively to the founding Wen family’s announcement of their intention to privatise Selangor Properties Bhd at RM5.70 last Thursday, there are dissenting voices.
Following the announcement, the counter surged RM1.21 or 29.8% the next day to close at a 2½ high of RM5.27. Although this boosted the group’s market capitalisation by RM420 million to RM1.81 billion, from RM1.39 billion at its previous close, liquidity remained thin with just 356,400 shares traded last Friday.
Still, this was about 33 times the counter’s 200-day average trading volume of 10,288.5 shares.
At first glance, the offer looks attractive. This is considering that the offer is at a 40.39% premium over its last price before Thursday’s announcement, and at a level the counter has not seen since March 2016.
However, not all its shareholders are jumping for joy. Pangolin Investment Management, which holds a 1.24% stake in Selangor Properties, believes the offer price is too low.
“We deem the offer as unfair. The offer price ... is still a 20.7% discount to the company’s book value as of July 31, 2018, of RM7.19 per share,” says Pangolin founder and director James Hay in an email.
As Selangor Properties is the biggest owner of prime real estate in Damansara Heights, Hay believes the shares are worth as much as RM12.22 apiece based on Pangolin’s realised net asset value estimates.
Pangolin values a total of 30.71 acres of the group’s land and properties in Damansara Heights at RM1,400 psf, which works out to a total market value of RM1.87 billion.
By comparison, Selangor Properties recorded a net book value of RM408.2 million for the same properties and land as at October last year, according to its 2017 annual report.
It is worth noting that back in 2014, Selangor Properties sold 6.34 acres of land in Pusat Bandar Damansara to Tan Sri Desmond Lim Siew Choon’s Jendela Mayang Sdn Bhd at RM450 million for the construction of Pavilion Damansara Heights. This valued the land at RM1,627 psf.
However, this was done at a time when land and property prices were at a peak. An industry expert contacted by The Edge says a more realistic figure now would be closer to RM1,200 psf.
This means the market value of the group’s land in Damansara Heights alone could be between RM1.6 billion and RM2.14 billion.
On top of that, Hay argues that the company is cash rich. The group had net cash and cash equivalents of RM264.2 million as at end-July 2018, according to Selangor Properties’ financial statements.
However, Pangolin says this figure should include financial assets of up to RM702.92 million, which can be easily liquidated. It calculates that the group is sitting on a net cash pile of RM711.5 million as at July 31, 2018.
The current offer would see Selangor Properties paying RM622.3 million to entitled shareholders.
Pangolin is the fourth largest shareholder. Kaiyin Holdings Bhd, the private vehicle of the Wen family, controls the largest stake of 68.23%, followed by Credit Suisse Group AG and ValueCAP Sdn Bhd, which is equally owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and Kumpulan Wang Persaraan (Diperbadankan).
Kaiyin has highlighted that the proposed takeover price of RM5.70 per share represents a premium of 19.62% against its one-year volume weighted average price (VWAP), and a premium of 40.45% against its five-day VWAP as at last Thursday.
Kaiyin had proposed a selective capital reduction (SCR) and corresponding capital repayment of RM5.70 per share in Selangor Properties held by all other shareholders except for Kaiyin itself.
The entitled shareholders, who collectively hold 109.17 million shares or the remaining 3.77% stake, would thus get a total capital repayment of RM622.27 million or RM5.70 per share.
The proposed SCR is subject to approval from disinterested shareholders at an extraordinary general meeting to be held later.
As Kaiyin will have to abstain from voting on the proposal, it requires the approval of a majority of the other shareholders and 75% in value to the votes attached to the shares. It must also not be voted against by more than 10% of Selangor Properties’total shareholders.
The board, excluding any interested directors, has until Dec 17 to respond to the proposal letter.
In its letter, Kaiyin says the privatisation plan comes against the backdrop of a subdued property investment and development landscape.
“The number of unsold high-rise residential properties, combined with the oversupply of commercial properties and new developments, such as Damansara City and Pavilion Damansara Heights around the group’s existing properties, would not only drive vacancy rates high and depress effective rental rates of its existing investment properties, but will also limit the group’s development activities, especially on its land bank in Damansara Heights in the short- to medium-term,” it adds.
Thiam Chiann Wen, an analyst with TA Securities, advises shareholders to accept the offer.
“Given the challenging environment and low trading liquidity of Selangor Properties’ shares, the SCR represents an opportunity for entitled shareholders to realise their investments in the group at an attractive premium above historical trading prices,” he writes in a note on Friday.
The privatisation proposal suggests that changes are afoot at Selangor Properties, founded in 1963 by the late Tan Sri Wen Tien Kuang and his wife, the late Puan Sri Chook Yew Chong Wen.
Chook acted as the group’s executive chairperson until her retirement in December 2017 last year. She died on Sept 13 at the age of 98.
She was succeeded as executive chairperson by Wen Chiu Chi, the third of her four children. Wen was previously Selangor Properties managing director and spearheaded the development of AIRA Residences, a condominium that marked the return of the group to Malaysia’s property scene in 2016.
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