Keppel’s bid for SPH

Keppel sees sufficient firepower for other growth areas after SPH acquisition

It has debt headroom for other initiatives, could pivot to new growth engines, says CEO

Keppel's deal values Singapore Press Holdings at $3.4 billion, with Keppel's share of the deal totalling $2.2 billion.
Keppel's deal values Singapore Press Holdings at $3.4 billion, with Keppel's share of the deal totalling $2.2 billion.ST PHOTO: KHALID BABA
Keppel Corporation chief executive Loh Chin Hua (right) and chief financial officer Chan Hon Chew speaking to the media and analysts yesterday. Mr Loh said Singapore Press Holdings' businesses and assets fit well in the Keppel ecosystem.
Keppel Corporation chief executive Loh Chin Hua (right) and chief financial officer Chan Hon Chew speaking to the media and analysts yesterday. Mr Loh said Singapore Press Holdings' businesses and assets fit well in the Keppel ecosystem.PHOTO: KEPPEL CORPORATION

Even after its proposed acquisition of Singapore Press Holdings (SPH), Keppel Corp expects to have sufficient firepower for more investments in other growth segments "to create new profits to pay dividends in future".

Speaking to the media and analysts yesterday, Keppel Corp chief executive Loh Chin Hua noted that the group has sufficient debt headroom for other initiatives.

Keppel made a privatisation offer via a scheme of arrangement for SPH's non-media business. The deal values SPH at $3.4 billion, with Keppel's share of the deal totalling $2.2 billion.

Under the offer, SPH shareholders will receive a total consideration of $2.099 per share. This will comprise cash of 66.8 cents per share, 0.596 Keppel Reit unit (valued at 71.5 cents) and 0.782 SPH Reit unit (valued at 71.6 cents) per share.

The offer price is also equivalent to SPH's adjusted net asset value per share excluding the media business.

Asked why SPH minority shareholders will be attracted to the $2.099 offer, which is close to its book value of about $2.08 a share, Mr Loh said "it is for the SPH board to address to its unit holders".

"But we think it is a win-win for both. This is a unique and rare, attractive opportunity for Keppel and also for SPH unit holders to realise their investment post-media demerger," Mr Loh said.

He added that with its asset monetisation plan in place, the group could pivot to new growth engines. "As we improve the quality of our earnings, by increasing the proportion of net income recurring, it will give us a better platform to pay dividends to shareholders," he said.

Mr Loh noted that the market has already "taken a shine" to Keppel raising its interim dividend to 12 cents a share, due to Keppel's return to profitability for the first half of the year. "We still need to invest to create new profits to pay dividends in future," he added.

Under the scheme, Keppel will offer about $1.08 billion in cash and about $1.156 billion of Keppel Reit shares. SPH will concurrently distribute in specie SPH Reit shares valued at $1.157 billion, while retaining a 20 per cent stake in SPH Reit.

On how the deal will be funded, Keppel chief financial officer Chan Hon Chew said the $1.08 billion will be drawn from "internal cash, borrowings and its asset monetisation plans". "We expect another $1 billion from asset monetisations from July 2021 onwards," he added.

Mr Loh said the group's liquidity will remain robust post-acquisition.

From last October to date, Keppel has announced asset monetisation of more than $2.3 billion. "Following this transaction and as we continue our asset monetisation programme, our leverage is expected to remain below 1.0x. ... (Using) Keppel Reit units to partly satisfy the scheme consideration will limit the impact to our gearing."

SPH's businesses and assets fit well in the Keppel ecosystem, he said. The largest segment is asset management, which includes SPH's PBSA (purpose-built student accommodation) platform, which has become a large PBSA owner-operator in the UK, he said.

SPH Reit owns retail assets in Singapore, including medical suites in Paragon, and a senior living business comprising Orange Valley and a portfolio of nursing homes in Japan.

Within the urban development segment, it has Seletar Mall and a Woodleigh integrated development that is under construction.

"These assets generate recurring investment income and will accelerate our plans to pivot Keppel Land's business model from residential trading with lumpy earnings towards more recurring income as an urban solutions provider," Mr Loh said.

"While the retail sector has been affected by Covid-19, the SPH Reit portfolio in Singapore and Australia, particularly its suburban assets providing essential retail, has shown resilience during the pandemic.

"With continuing vaccination and progressive reopening of borders, we expect retail to further improve. SPH Reit's distributions have already rebounded to near pre-Covid-19 levels with portfolio occupancy averaging above 90 per cent."

Keppel and SPH are already close partners in M1 and the Genting Lane data centre project. The move to acquire SPH will streamline decision-making, he said.

Asked if a partial sale of M1 will occur soon, Mr Loh said: "M1 is in a multi-year journey to transform itself from a telco to a cloud native connectivity platform, so it makes more sense for M1 to remain private for now.

"This will make M1 a very important growth engine for the group, especially with the launch of 5G for consumers and businesses."

A version of this article appeared in the print edition of The Straits Times on August 03, 2021, with the headline 'Keppel sees sufficient firepower for other growth areas after SPH acquisition'. Subscribe