LIPPO Group has positioned itself in a pretty sweet spot by buying out ex-partner Ananda Krishnan’s stake in Overseas Union Enterprise (OUE), and upping its hold on the property company to 88.52 per cent.
With the deal, it has just enough interest to effectively dictate OUE’s direction – and also all the time it needs to decide whether to delist the latter, or turn it into a stockmarket darling.
For now, Lippo is unlikely to take OUE private. If history shows anything, it is that Lippo sees some worth in letting the latter stay listed.
When Lippo first joined hands with Mr Krishnan to buy into OUE in 2006, a general offer was triggered. OUE Realty (the 60:40 joint venture between Lippo and Usaha Tegas) ended up with a 94.51 per cent stake in the property company.
Under Singapore Exchange (SGX) listing rules, the free float of a company’s shares cannot fall below 10 per cent. OUE Realty was short of just another 5.49 per cent to take OUE private, and it could have paid just $10.20 a share, but it did not do so. Instead, it placed out new shares at a slightly higher $10.50.
Compare this with today’s situation, and it would seem like there is less incentive for Lippo to delist OUE. First, Lippo would have a larger stake of 11.48 per cent out there to buy. Second, OUE’s share price has increased since; it was $11.14 at market close yesterday. The price has stayed above $11 after Lippo paid that amount per share for Mr Krishnan’s stake on Tuesday.
History aside, there could be other restrictions at play. To part-finance the $957 million buyout of Mr Krishnan’s shares, Lippo had to borrow from banks. One would never know if the loans came with certain covenants, such as a requirement to keep OUE listed.
Most unequivocally, Lippo said on Tuesday that it aims to keep OUE listed. Of course, it is a case of ‘never say never’ in the business world, and it takes only the right price to get anything done. But so far, the signs point to OUE staying on the exchange.
Lippo stands to gain in some ways from this. There are the usual benefits which accrue to listed companies – the ability to raise funds from shareholders or issue debt, just to name a few.
The question now is whether Lippo would be keen to spur investor interest in OUE. More trading in the counter could help it reach its full value, which would ultimately benefit Lippo, the majority shareholder.
This would be hard without raising OUE’s free float, which is just slightly over 10 per cent. The good thing for Lippo is that unlike four years ago, when regulators were breathing down its neck, it is in no hurry to decide whether to place out more shares. It can wait for an attractive price to come about before doing so.
Apart from bringing more shares into the market, Lippo would also need to convince investors of OUE’s potential. There are still lingering doubts over the health of Singapore’s property market. And some analysts even suggested that cashing out was a smart move by Mr Krishnan, given the possibility that OUE’s earnings would come under pressure later from a possible oversupply of hotel rooms in Singapore.
But in all, it would be fair to say that Lippo has gotten itself into a rather comfortable driver’s seat at OUE. The market will be keeping its eyes peeled for what plans Lippo has for the company next.
Source: Business Times, 12 Mar 2010