KUALA LUMPUR: S P Setia Bhd, the country’s second largest property firm by market capitalisation, is the latest to be swept off the private property sector with the takeover offer by its parent Permodalan Nasional Bhd (PNB).

It is the second transaction in the real estate industry related to PNB, after Sime Darby Bhd’s proposed acquisition of 30% stake in Penang-based Eastern & Oriental Bhd just last month. PNB owns 48.1% in Sime.

Trading in S P Setia shares was suspended yesterday to facilitate the exercise, but the stock rallied nearly 13% or 40 sen to RM3.50 on heavy trading just the day before, ahead of the news. The exercise confirmed an exclusive front-page report in The Edge Financial Daily yesterday.

In a notice yesterday, PNB extended a conditional takeover to acquire for cash all S P Setia shares at RM3.90 per share and warrants at 91 sen per unit.

Meanwhile, in response, S P Setia said it will invite counter bids from other parties as it views the offer by PNB “fundamentally undervalues” the developer.

“The board has met to consider the offer and is of the view, based on external valuations of the company by investment analysts published before receipt of the offer, that the offer fundamentally undervalues the company”, it said in a statement to Bursa Malaysia.

“The board will also be writing to the offeror to enquire whether they are interested in revising the offer price upwards to reflect a price which is closer to the fair value of S P Setia,” it added.

The company said the decisions were taken at an emergency board meeting convened yesterday with the unanimous vote of all board members present save for Tan Sri Wan Mohd Zahid Mohd Noordin who is an interested director.

It said Wan Mohd Zahid and Datuk Noor Farida Mohd Ariffin, both deemed connected to the offeror, will abstain from deliberating and voting at all the relevant board meetings in relation to the offer.

S P Setia plans to appoint an independent adviser in relation to the offer, and advised shareholders not to take any action until receipt of the independent advice circular.

The offer is conditional upon PNB receiving more than 50% of the voting shares of S P Setia. It currently has a 33.17% stake in the property developer. It was launched after PNB and parties acting in concert acquired a total of 3.07 million shares from the open market on Tuesday at prices ranging from RM3.16 to RM3.50 per share. This raised their stake from 32.99% to 33.17%, triggering the general offer.

The purchases accounted for 41% of that day’s trading volume of 7.4 million shares.  

PNB can easily achieve the threshold if the Employees Provident Fund, which controls a 13.42% stake and Kumpulan Wang Persaraan (KWAP) which holds 5%, accept the offer, as it would end up with 51.59%.

This could also mean that PNB may not even need the nod of other shareholders, including that of Tan Sri Liew Kee Sin’s. Liew owns 11.26% of S P Setia.

As at Aug 31, before the recent market sell-off, S P Setia had a foreign shareholding of 21%. With the exit of foreign investors and uncertainties over the company’s future leadership and management direction, analysts say many of them could be inclined to accept PNB’s offer.   

If the proposal goes through, this could effectively turn S P Setia, an epitome of successful entrepreneurial drive, to a government-linked entity.

While PNB intends to keep S P Setia listed post-takeover, the big question remains: will Liew exit and will its management be revamped?
Liew has declined to give a statement on the matter.

A MIDF property analyst said this is a concern given S P Setia’s reputation today is owed to the current management of the company.

“Investors’ decision (on whether to hold onto S P Setia shares) will very much depend on whether or not the management will be the current guys.

“Because if you look at S P Setia’s current products like Setia Alam and its landbank; they need that kind of management to achieve such a reputation that was built over years and years,” he said.

Affin Investment Bank property analyst Isaac Chow said although the offer price translates into a marginal premium to S P Setia’s estimated real net asset value of RM4, it can present a good opportunity for investors to cash out against a dismal market outlook.

“We are just curious on the future plans and direction of the company,” he added.

The proposal follows PNB and parties-in-concert’s acquisition. The offer price is at a premium of 11.4% to S P Setia’s closing price of RM3.50 on Tuesday, a 21% premium to the five-day volume weighted average price (VWAP) and a 15% premium to the one-month VWAP of S P Setia shares.

The offer price for the warrants translates into a premium of about 98% to Tuesday’s closing price and 116% to the five-day VWAP.

With net assets per share of RM1.81 as at July 31, the RM3.90 offer translates to a price-to-book ratio of 2.15 times.  

For the nine months to July 31, S P Setia chalked up net profit of RM245.5 million, or 14.6 sen per share, on the back of RM1.6 billion in revenue.

PNB is no stranger to the real estate scene given its holdings in both listed and unlisted entities. S P Setia is possibly its biggest investment in the sector so far.

The few PNB listed property firms that have been de-listed include Island & Peninsular Bhd, Austral Enterprises Bhd and Pelangi Bhd.

In the event PNB plans to consolidate its property firms, including S P Setia, the merged entity can possibly become the country’s largest property group by market capitalisation.

S P Setia will be the latest to join the foray of acquisitions led by the government-linked companies in private property sector.

Last year, government-linked UEM Land Bhd acquired Sunrise Bhd to create the country’s largest property development company by market capitalisation.

By comparison, Sunrise, which was acquired at RM2.80 plus a 20 sen dividend to shareholders, was priced at 1.32 times its net assets per share of RM2.28 as at Sept 30, 2010, before the takeover was announced.

This article appeared in The Edge Financial Daily, September 29, 2011.