Quek’s savvy play

  • Business
  • Saturday, 22 Aug 2015

Tycoon surprises market with move to exit from Beijing property project

Tycoon Tan Sri Quek Leng Chan’s move to sell out from a significant Chinese property development project has got the market trying to second-guess the reasons behind the savvy investor’s move.

On Thursday, Singapore-listed GuocoLand Ltd said it would sell its interests in an integrated property project in Beijing’s Dong Cheng district to a Chinese firm for a whopping 10.5 billion yuan or RM6.8bil.

The sale comes at a time when a rights issue is being carried out at the Quek-controlled Hong Leong Financial Group Bhd (HLFG) in Malaysia.

So the question is, will some of the proceeds from the sale of the China asset flow back to Quek and his associates for them to subscribe to their portion of the HLFG rights issue?

Or are the two events totally unrelated and could Quek then be on fund-raising mode preparing for opportunities that crop up in this economic downturn?

Or, is the move merely to shore up the balance sheet of GuocoLand, which is highly geared, being in a net debt position of S$4.3bil?

But first, it is important to understand the shareholding structures of all these companies, considering the significant cross-holdings involved.

Quek and associates control 76.12% of Hong Kong-listed Guoco Group Ltd, which in turn controls 65.2% of Singapore-listed GuocoLand Ltd, meaning that Quek’s effective stake in the latter is around 49%. It is GuocoLand that is selling the China asset and getting the proceeds of RM6.8bil. In other words, theoretically, if all these sales proceeds were to be divvied up, Quek would be entitled to around RM3.35bil.

HLFG’s proposed rights issue, announced on Aug 12, seeks to raise RM1.1bil. Since Quek controls 77.31% of HLFG, his portion of the rights issue amounts to RM858mil, a much smaller figure than what he could potentially reap from the sale of the China asset.

HONG LEONG BANK BHD (HLBB), which is 64.4%-owned by HLFG, is also calling for a rights issue to raise RM3bil, of which HLFG’s portion is RM1.92bil.

To be noted is that GuocoLand has already said that the proceeds from the sale would be used for working capital, including the repayment of debts.

GuocoLand has net debts to the tune of S$4.35bil (RM12.9bil), which means that all the proceeds from the sale could be used to lower its high debt levels, leaving nothing for dividends.

The company is a major property developer in Singapore with notable developments in China, Malaysia and Vietnam.

It is currently developing three mega mixed-use developments, one being the Tanjong Pagar Centre, which will have Singapore’s tallest building when completed. Its other large-scale projects are the Guoson Centre in Shanghai and through Bursa-listed GuocoLand (M) Bhd, developing Damansara City in Kuala Lumpur.

In the Singapore-listed GuocoLand’s 2014 annual report, it was stated that it expects to reduce its high gearing through sales of development projects and active management of its cash flow and debt-to-equity ratio.

GuocoLand’s shares rose three Singapore cents yesterday to S$2.07, while Guoco Group closed at HK$86.70, 10 cents up from the day earlier.

On Bursa, HLFG was down 1.19% to RM13.34, while HLBB fell 0.47% to close at RM12.72 on Friday.

A coup for Quek

In any case, GuocoLand’s move to sell its China real asset and make a decent gain on disposal of around 1.58 billion yuan or S$480mil is a coup.

Many companies entering into the Chinese market face problems of reaping a decent return on investment.

One other company that had also successfully sold an asset in China for a decent return is SALCON BHD. In September 2013, Salcon announced the disposal of its interest in six companies involved in water and wastewater concessions in China to Hong Kong-listed Beijing Enterprises Water Group Ltd for 955 million yuan or RM518.3mil.

It is no secret that Quek is constantly looking at restructuring his group of companies, to take off those that are undervalued and possibly list others in the near future. At the same time, the astute investor is always working out good deals.

In 2013, he failed to privatise Guoco Group although he had raised the offer price from the initial HK$88 in December 2012 to HK$100 per share four months later.

In the same year, he attempted to take private Hong Leong Capital Bhd (HLCap) at a price of RM1.71 per share, but that plan was also thwarted. Interestingly, the share prices of both companies rose above what Quek’s companies have offered to take them private.

HLCap is now suspended for having failed to meet the exchange’s public shareholding spread requirement.

The privatisation of Guoco Group would simplify its shareholding structure. Listed in Hong Kong in 1983, it holds a multitude of companies, ranging from banks to gaming, lesuire and hospitality and property development companies,

Other asset disposal

Following the sale of the China real estate, industry observers are not ruling out more divestments of non-core assets by Quek.

This could include some hotels parked under another Singapore-listed entity, GuocoLeisure Ltd.

The 66.5% subsidiary of Guoco Group is the hospitality and leisure arm that has under it GLH Hotels Ltd and Clermont Leisure Limited (CLUK) in the United Kingdom.

GLH owns or operates hotels which run the Guoman, Amba and Thistle-branded hotels. CLUK, meanwhile, is a licensed casino operator in the UK, which runs the prestigious Clermont Club in Mayfair, London.

But GuocoLeisure’s return on equity, a measure of the company’s profitability, at 3.3% for 2014 is below the 8% average reported by Singapore’s blue chips, an investment portal notes. Earnings-wise, it has not been all that great, but it managed to turn around its loss to a net profit of US$4.4mil for the third quarter ended March 31, 2015.

According to GuocoLeisure’s financial year 2014 annual report, its management indicated that they are looking to exit non-core businesses such as their real estate interests in Fiji.

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