SC Global Developments

BT - Reuters Article

PUBLISHED DECEMBER 21, 2012
Simon Cheong may have to sweeten offer
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Mr Cheong: Says that privatising SC Global gives it more flexibility to manage its developments - PHOTO: ARTHUR LEE
SINGAPORE property magnate Simon Cheong, best known for selling luxury units at record prices, may have to fork out more money to appease his company's key shareholder and take SC Global Developments Ltd private in a planned $745 million deal.
Mr Cheong, who controls 60 per cent of the company and is chief executive and chairman, faces resistance from Wheelock Properties (Singapore) Ltd, which owns 16 per cent of the firm and recently bought shares just above the tycoon's offer price.
Wheelock has also hired Goldman Sachs to advise on its stake, but sources with direct knowledge of the matter said that the company, controlled by Hong Kong-based group Wheelock and Company Ltd, believes that a much higher price for SC Global is warranted.
Bankers and analysts believe that a counterbid for SC Global is unlikely because Mr Cheong owns a controlling stake in the company.
Wheelock sees the revised net asset value (RNAV) of SC Global at $3 a share or more, one of the sources said, about 50 per cent above SC Global's share price. RNAV is the estimated break-up value of a property firm based on its assets.
The sources declined to be identified as they were not authorised to speak to the media. A spokeswoman for SC Global declined comment.
Mr Cheong, a former investment banker who set up SC Global in 1996, has positioned it as a niche developer with exclusive residential enclaves in a country boasting the world's highest concentration of millionaires. Last year, it sold a 3,000 square foot apartment for a record US$19 million in the prime Orchard Road area.
"If Simon Cheong really wants to privatise SC Global, he has to increase the offer price. Currently, it's pretty unlikely that the other minority shareholders will accept the offer,"said Bryan Go, an analyst at Philip Securities. "The completed assets are worth more than the offer price, but current slow sales are dragging the potential value."
Bosses of Singapore-listed companies are taking their firms private to take advantage of beaten-down prices and cheap financing.
SC Global's shares rose to a five-year high of $2.08 this week following Mr Cheong's offer, which was at a 49 per cent premium to its last traded price.
Mr Cheong said that taking the company private will give it "greater flexibility to manage and plan its residential property development" business, and that SC Global has not tapped capital markets for funds for at least the past six years.
Demand for luxury apartments, a segment in which SC Global competes with Wing Tai Ltd and Ho Bee Investment Ltd, has fallen significantly following a string of measures by the government to cool prices, hitting the shares of developers.
Last December, the government imposed an additional 10 per cent stamp duty on the property value that buyers who were not Singapore citizens or permanent residents had to pay. More measures followed this year. - Reuters

As it is now, with the share price trading above the GO price of $1.80 and Simon Cheong being unable to buy more in the open market to privatise the company, it would seem the assumption would be that SC Global cannot be privatised ... unless Simon Cheong makes a higher bid.

It should be clear that it is in neither Simon Cheong's interest nor Wheelock's interest to see SC Global subjected to the additional charges, so something has to give.

Interesting...

Wheelock owns 16+% of SC Global and claimed that at $1.80, it is not reflective of the underlying assets.

I personally think that it is a fair statement.

Perhaps based on the upcoming IFA valuations, Simon can propose to transfer to Wheelock 16% of what the assets are - assuming Wheelock purchased them from SC Global in return for an agreed revised GO price - for example S$1.88. Wheelock can then pay whatever taxes as a foreign entity and hold the properties till the cows come home.

With Wheelock out of the way, the rest of the mkt will have less "backing" to hold out and Simon can then delist SC Global to move it towards a pure Singaporean owned company. The balance of the inventory can then be hold till the ripe price and time for sale...

Just another imagination. But for the time being dateline for IFA circular 2 Jan 13 and final date for acceptance 16 Jan 13 5.30pm.

Interesting alternative. Complex but asset swap is not totally impossible and I don't think Wheelock is considered connected person since they don't hold board seat?

I am not personally familiar with the GO rules, and am hoping somebody would advise on the following:

- If Simon Cheong is to raise his bid in order to garner enough shares to privatize the company, does he require to do it within this GO period, ie in this instance before the 16 Jan? Or can he still do it after 16 Jan, upon seeing the acceptances of his offer price at $1.80? But clearly, with the shares trading as it is now, the assumption must be that he cannot privatize the company at $1.80?

Thanks

(24-12-2012, 05:59 AM)gemini Wrote: I am not personally familiar with the GO rules, and am hoping somebody would advise on the following:

- If Simon Cheong is to raise his bid in order to garner enough shares to privatize the company, does he require to do it within this GO period, ie in this instance before the 16 Jan? Or can he still do it after 16 Jan, upon seeing the acceptances of his offer price at $1.80? But clearly, with the shares trading as it is now, the assumption must be that he cannot privatize the company at $1.80?

Thanks

Once the close date lapses without extension, the GO will lapse. No further GO activities are allowed after then.

Restrictions apply within a specific period after a GO lapses.

Detail can be found in The Singapore Code on Take-Overs and Mergers.

BT - Bloomberg but there is no fresh angle.

Published December 25, 2012
Traders betting on sweeter SC Global takeover offer
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'The public's perception of SC Global's fair value is probably higher than the figure Simon Cheong has offered, and hence they are not in a hurry to accept the offer.'
- AmFraser Securities analyst Sarah Wong

[SYDNEY/SINGAPORE] TRADERS are betting that the most lucrative takeover offer in Singapore will get even sweeter for luxury property developer SC Global Developments Ltd.

Controlling shareholder and chief executive officer Simon Cheong offered to take SC Global private for $1.80 a share on Dec 5, valuing it at $745 million. At 61 per cent more than the stock's 20-day average, it's the biggest premium for any acquisition of a developer in Singapore on record, according to data compiled by Bloomberg. Since then, SC Global's second-largest investor, Wheelock & Co, bought shares above the deal price, and the stock closed at $1.91 last week, indicating that traders expect Mr Cheong to pay more.

"Wheelock is not happy with the price," Gregory Yap, a Singapore-based analyst at Malayan Banking Bhd, known as Maybank, said. "The signal to Simon Cheong by Wheelock is that $1.80 is too low."

Mr Cheong may need to raise his offer by as much as 39 per cent to win over shareholders, Mr Yap said. Singapore has seen demand for high-end homes slump after the government imposed measures aimed at reining in rising prices. Still, sales of luxury units are already improving and volumes may rebound by more than 20 per cent next year, said Savills plc.

SC Global ended trading yesterday at $1.945, up 3.5 cents.

"We would be unable to buy property assets directly at anything like these prices," Wheelock said in the Dec 13 statement disclosing its purchase of more SC Global shares for about S$1.9 million.

SC Global has grown along with Singapore's wealthy population, reporting a seven-fold profit increase in the five years through 2011, data compiled by Bloomberg show. By last year, Singapore had the highest proportion of millionaires of any country, with more than 188,000 such households, or about 17 per cent of the city's total, according to a May report from The Boston Consulting Group.

"SC Global has a very decent portfolio of high-end properties," Sarah Wong, a Singapore-based analyst at AmFraser Securities, said. "The public's perception of SC Global's fair value is probably higher than the figure Simon Cheong has offered, and hence they are not in a hurry to accept the offer. It's likely that he'll have to increase the offer."

Still, sales have slowed after Singapore took steps to discourage speculation in real-estate, requiring foreigners to pay an additional 10 per cent tax on property purchases and adding levies on second or third homes. Amid fluctuating sales, SC Global reported losses in three of the four most recent quarters, and earnings are expected to fall 79 per cent in 2012, analysts' estimates compiled by Bloomberg show.

When Mr Cheong made the offer, he said that an unlisted company would have more flexibility if it didn't have to report results on a quarterly basis and noted that SC Global hasn't tapped capital markets in at least six years.

Currently a company with foreign shareholders, SC Global also faces fines for failing to sell units within two years of completing developments. That law is designed to ensure land in Singapore, an island state with a population of more than five million, isn't hoarded for speculation. Owned only by Mr Cheong, a Singaporean, SC Global wouldn't be subject to the rule.

As of November, the company had launched and sold only 46 of the 241 units at its Hilltops development, which was finished in 2011, data from Singapore's Urban Redevelopment Authority show. At The Marq on Paterson Hill, half of the 66 units have sold since it was completed in 2011, the data show.

"From Simon Cheong's perspective, he's not just selling a piece of air in the sky, he's selling a lifestyle," Mr Yap said. "He doesn't deal in a mass market model."

The penalties may total $71.7 million in 2013, according to Mr Yap's estimates. Among analysts in Singapore, the range of targets for SC Global's RNAV is between $3 and $4, said Mr Yap, whose own RNAV estimate is $4 a share.

Mr Cheong's offer represents a discount of about 50 per cent to the midpoint of that range. Based on previous deals, the CEO should be paying a 30-40 per cent discount, Mr Yap said. That's as much as $2.50 a share or as little as $2.10, he said.

With little chance of a rival bidder, Mr Cheong faces no outside pressure to raise his offer, said Bryan Go, an analyst at Phillip Securities Research.

"He can stay put at the current offer," Mr Go said. "They have a good product and they have a good margin but they have not been cutting prices."

As a public company, Wheelock would remain a shareholder and SC Global would continue to be subject to Singapore's restrictions and potential penalties on foreign-owned developers. To avoid those penalties and the burden of running a publicly traded company, Mr Cheong will be motivated to raise his bid, Mr Yap said. - Bloomberg

http://info.sgx.com/webcoranncatth.nsf/V...000360987/$file/SCGlobal_OffereeCircular.pdf?openelement

IFA circular out today:

(m) The Offer Price represents a discount of approximately 20.0% to the RNAV per Share of
S$2.2 5. However, we note that the Company has a substantial inventory of unsold units as
well as development properties that have uncontracted units expected to be completed in
future. Taking into account the outlook for the luxury residential sector in Singapore and the
slow take-up rates of the Company’s inventories, the Company may not be able to sell its
inventories at the necessary premiums to realise profi ts in the near future. In addition, we
wish to highlight that the RNAV per Share calculated is based on the estimated revaluation
surpluses on unsold and/or uncompleted development properties and does not take into
account factors such as, inter alia, time value of money, market conditions, legal fees,
liquidation costs, contractual obligations, regulatory requirements and availability of potential
buyers, which would theoretically lower the RNAV that can be realized;

Having considered the aforesaid points including the various factors set out in this letter
and summarised in this section, we are of the opinion that, on balance, the fi nancial terms
of the Offer are fair and reasonable and are not prejudicial to the interests of minority
Shareholders. Based on our opinion and accordingly, we advise the Independent Directors
to recommend that Shareholders accept the Offer, unless Shareholders are able to obtain
a price higher than the Offer Price in the open market, taking into account all brokerage
commissions or transaction costs in connection with open market transactions.”
7.4 Recommendation of the Independent Directors. The Independent Directors, having reviewed
and carefully considered the terms of the Offer and the advice given by the IFA to the Independent
Directors in the IFA Letter, CONCUR with the advice of the IFA in respect of the Offer.
Accordingly, the Independent Directors recommend Shareholders to ACCEPT the Offer or
sell their Shares in the open market if they can obtain a price higher than the Offer Price (after
deducting related expenses).

Haha.. can tell that the independent financial advisor is trying very hard to earn their fees.

(26-12-2012, 07:20 PM)greengiraffe Wrote: http://info.sgx.com/webcoranncatth.nsf/V...000360987/$file/SCGlobal_OffereeCircular.pdf?openelement

IFA circular out today:

(m) The Offer Price represents a discount of approximately 20.0% to the RNAV per Share of
S$2.2 5. However, we note that the Company has a substantial inventory of unsold units as
well as development properties that have uncontracted units expected to be completed in
future. Taking into account the outlook for the luxury residential sector in Singapore and the
slow take-up rates of the Company’s inventories, the Company may not be able to sell its
inventories at the necessary premiums to realise profi ts in the near future. In addition, we
wish to highlight that the RNAV per Share calculated is based on the estimated revaluation
surpluses on unsold and/or uncompleted development properties and does not take into
account factors such as, inter alia, time value of money, market conditions, legal fees,
liquidation costs, contractual obligations, regulatory requirements and availability of potential
buyers, which would theoretically lower the RNAV that can be realized;

Having considered the aforesaid points including the various factors set out in this letter
and summarised in this section, we are of the opinion that, on balance, the fi nancial terms
of the Offer are fair and reasonable and are not prejudicial to the interests of minority
Shareholders. Based on our opinion and accordingly, we advise the Independent Directors
to recommend that Shareholders accept the Offer, unless Shareholders are able to obtain
a price higher than the Offer Price in the open market, taking into account all brokerage
commissions or transaction costs in connection with open market transactions.”
7.4 Recommendation of the Independent Directors. The Independent Directors, having reviewed
and carefully considered the terms of the Offer and the advice given by the IFA to the Independent
Directors in the IFA Letter, CONCUR with the advice of the IFA in respect of the Offer.
Accordingly, the Independent Directors recommend Shareholders to ACCEPT the Offer or
sell their Shares in the open market if they can obtain a price higher than the Offer Price (after
deducting related expenses).

Pg 35 to 37 of the IFA circular together with the appendices IX-1 to IX-12 detailed how the valuer derived on the valuation of each of the properties:

i) Martin 38 @ S$2256 psf (after factoring 2 years of qualifying certificate extension);
ii) Merq @ S$3763 psf (after factoring 3 years of qualifying certificate extension);
iii) Hilltops @ S$2640 psf (after factoring 3 years of qualifying certificate extension);
iv) 7 Palms @ Sentosa @ S$3001psf (construction costs @ $406.70psf)
v) Sculptura at Admore @ S$4000psf (construction costs @ $1017psf)

The above numbers appeared to have fairly accounted for the losses expected to be incurred on the qualifying certificate extension even though the amount assigned to each projects were not revealed in the circular.

The main question to ask lies with the ability of SC Global to sell the unsold properties at prices higher than the above amount (since the above numbers is already net off the qualifying certificate extension costs).

Looks like there is limited amount that Simon will raise the offer unless the valuations by the independent valuer is way off the mark.