Wires

Desperately seeking value: Cash-flush shareholders drive Singapore buyouts

Share

* Singapore management buyouts at $10.9 bln this yr vs $3bln in 2011

* Beaten-down valuations, cheap financing spur buyouts * Consumer-related, cyclical firms attractive By Charmian Kok

SINGAPORE, Oct 11 (Reuters) - Bosses of Singapore-listedcompanies are taking their firms private to take advantage ofbeaten-down prices and cheap financing, more than treblingmanagement buyout deals in the island-state to $10.9 billioncompared with the whole of 2011.

Among Southeast Asian countries, Singapore is seeing thesharpest increase in management buyouts due to the presence oflarge shareholders with deep wallets in a number of companies,such as coal miner Sakari Resources Ltd . Malaysia is adistant No.2 with just $579 million of deals so far this year.

The strong balance sheets of Singapore corporates and theisland's reputation for maintaining a stable operatingenvironment also helped boost management buyout deals in thecountry from $3 billion last year, Thomson Reuters data shows.

Some stakeholders are taking companies private in the hopesof re-listing them at a higher price after a round ofrestructuring, bankers say.

The number of deals in Singapore has risen to 13 so far thisyear, compared with 11 for 2011, according to the ThomsonReuters data.

One of the more prominent deals was PTT Pcl'sbuyout offer of nearly $1 billion for Sakari Resources announcedin August. The Thai energy producer, which owned almost half ofthe coal miner, swooped in with the offer just two months afterSakari's shares slumped to a three-year low.

"Some of the smaller companies are not trading very well interms of valuation. The owners behind those see an arbitrageopportunity," said Alvin Lim, managing director at HSBC'sSoutheast Asia advisory business.

Many midcaps are also finding it hard to justify the cost ofmaintaining a listing due to poor trading volumes.

"In some instances of less well-followed companies, there isa case for taking the company off the market given the high costof being listed," said Soek Ching Kum, head of Southeast Asiaequity research at Credit Suisse Private Banking.

Spurred by the deals, the FTSE Mid Cap Index hasjumped 26 percent this year, outperforming the benchmark StraitsTimes Index's 15 percent gain.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC of Southeast Asia management buyouts: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> CONSUMER AND CYCLICALS

Aside from energy-related plays, the focus has also turnedto the food and beverage segment following what was effectivelya $6.4 billion buyout of Singapore-listed Asia Pacific BreweriesLtd by Heineken NV last month.

"There will be companies from the Western world trying tolook at them to find growth or to privatise them to get a biggerproportion into their earnings," said brokerage CIMB's head ofSingapore research Kenneth Ng, who expects to see more buyoutsof consumer-related firms.

Although Asian consumer companies do not come cheap, manyEuropean companies, faced with tepid growth in their homemarkets, are willing to pay for strong Asian brands to leverageon their large sales and distribution networks.

In August, Japanese food and beverage firm Suntory HoldingsLtd , the majority shareholder of Cerebos Pacific Ltd, made a S$2 billion ($1.6 billion) offer to buy outminority shareholders of the maker of Brand's Essence ofChicken.

Analysts also list instant beverage makers Viz Branz Ltd

and Super Group Ltd as possible buyouttargets because of their reach in Southeast Asia's consumermarkets.

On Monday, Viz Branz's second-largest shareholder Ben Chngsold about 16 percent of his stake to a consumer goods firm,with some analysts saying this could be a prelude to a buyout.

Shares in Viz Branz, which sells instant coffee brands likeGold Roast, are trading on a price-to-earnings multiple of 14.6and Super Group at 18.8 times versus the industry average of27.6, brokerage DMG & Partners said.

Medical devices maker Biosensors International Group Ltd, whose shares have declined about 17 percent this yearon worries about falling sale prices, is also seen by analystsas a management buyout candidate.

It is 21 percent owned by Shandong Weigao Group MedicalPolymer Co Ltd .

Some beaten-down commodity-related cyclical stocks also lookripe for buyouts.

Palm oil processor Mewah International Inc , whoseshares have plunged 60 percent below its IPO price of S$1.10 twoyears ago, could be a likely candidate, CIMB said. The company'sexecutives control nearly 87 percent.

"There will be industry sectors where valuations may falland therefore it is easier to get hold of oil fields, gasfields, coal mines or palm oil plantations cheaper by buying thecompanies than by buying the actual mines or fields," said ChoeTse Wei, head of the strategic advisory group at DBS GroupHoldings Ltd .

However, with a slender pipeline of initial publicofferings, more de-listings could hurt Singapore, shrinking itsoverall market value and lowering its weighting on indices.

"Singapore's market to start with, doesn't have the breadthor depth of the bigger North Asian markets, so that's a negativedevelopment if we see more companies taken off," Credit Suisse'sKum said.($1 = 1.2267 Singapore dollars)

(Writing by Anshuman Daga; Editing by Ryan Woo)

((charmian.kok@thomsonreuters.com)(+65 6403 5666)(ReutersMessaging: charmian.kok.reuters.com@reuters.net))

Keywords: SINGAPORE MANAGEMENT/BUYOUTS