Fraser & Neave Ltd. (FNN), the 129-year- old conglomerate selling its brewery business, is poised to fracture further as the chance to own a piece of Singapore’s most famous shopping strip lures buyers.
After Heineken NV (HEIA) acquires F&N’s stake in a brewery they own for S$5.4 billion ($4.3 billion), the Singaporean company will still own businesses ranging from soft drinks to apartment buildings. An acquirer may pay as much as S$7.7 billion for the Frasers Centrepoint Ltd. property unit, 71 percent more than is reflected in F&N’s share price, said Religare Capital Markets Ltd. That would be Southeast Asia’s largest real-estate deal, according to data compiled by Bloomberg.
Rent in Singapore has remained high as the population surged 18 percent in five years and the city attracts a million visitors a month, data compiled by Bloomberg show. F&N’s 332,261-square foot mall on Orchard Road, the city’s biggest tourist attraction, and over 7,000 furnished apartments from Europe to Australia may lure foreign buyers, including billionaire Li Ka-Shing’s Cheung Kong Holdings Ltd. (1), said DMG & Partners Securities Pte. With similar assets and S$5.1 billion of cash, Singapore’s CapitaLand Ltd. (CAPL) is a natural buyer, according to Henderson Global Investors Ltd.
“These are big assets that don’t often come onto the market,” Tim Gibson, Singapore-based head of Asia-Pacific property research at Henderson, which oversees more than $100 billion, said in a telephone interview. “There’ll be lots of interested parties. Getting your hands on these types of assets will be tough otherwise.”
F&N rose as much as 2.2 percent today, and was up 1.1 percent at S$8.47 apiece at 9:14 a.m. in Singapore. The benchmark Straits Times Index rose 0.3 percent.
“F&N remains fully committed to deliver superior value to shareholders,” the company said in an e-mailed response to questions about its plans for the property assets. “Moving forward, we will sharpen our focus on and enhance value of the two core businesses of F&B and Properties through continued investments in these businesses and strategic M&As.”
Last week the company said that some of the S$4.8 billion net gain from the brewery sale will be used to repay debt, “giving us flexibility to take advantage of business opportunities in the food & beverage and properties businesses, in the region.”
Started in 1883 as a carbonated soft drinks company by John Fraser and David Chalmers Neave, F&N entered the property business more than a century later, according to its website. The company is better known for its stake in 81-year-old Asia Pacific Breweries Ltd., the brewer and distributor of Tiger and Heineken beers in markets from Indonesia to China.
Heineken’s agreement last month to buy APB, taking control of its main distribution vehicle in Asia, will leave F&N dominated by real estate. Excluding brewery income, property accounted for three quarters of F&N’s earnings of S$703 million last year, data compiled by Bloomberg show. The rest came mostly from soft drinks, dairies, and printing and publishing.
F&N shareholders are due to vote on the APB sale Sept. 28. With nearly 44 percent of F&N’s shares owned by two brewers, Thai Beverage Pcl (THBEV) and Japan’s Kirin Holdings Co., the sale may hasten the dismantling of F&N into consumer and real-estate businesses, according to Jenai Chua, a Singapore-based analyst at Bank Julius Baer & Co., which manages $281 billion in assets.
“The new owners probably want to maximize their investment value,” Chua said. “Splitting up the assets will be the best way to do it because F&N is trading at a discount to its assets.”
Kirin is only interested in F&N’s soft-drinks business because of the unit’s reach into Southeast Asia, the company said Aug. 3. “We have to use F&N as a vehicle to expand our new business in Southeast Asia,” Vichate Tantiwanich, senior vice president at ThaiBev, told Bloomberg News on Aug 1.
Spokesmen for both companies declined to comment further.
With F&N’s total market value at only S$11.9 billion as of last week, the property unit is being undervalued by investors, said Tata Goeyardi, a Singapore-based analyst at Religare.
While Goeyardi estimates the property portfolio is worth S$8.1 billion, F&N’s share price implies a value of only about S$4.5 billion, he said, citing his sum-of-the-parts analysis.
A corporate buyer may be willing to pay as much as S$7.7 billion for F&N’s property division, Goeyardi said. At that size, a sale would be the largest real-estate transaction on record in Southeast Asia, data compiled by Bloomberg show.
“What the share price is implying right now is that the property business is still undervalued,” Goeyardi said in a phone interview. “There are several interested parties that we think would be complementary.”
Stock investors aren’t subscribing enough value to the property business because the total F&N share price reflects other factors, including the market environment and the impact of other F&N assets, he said. Strategic buyers would only be focused on the value of the properties, he said.
The most valuable of F&N’s fully-owned investment properties is The Centrepoint, a mall in the Orchard Road shopping district, a 2.2-kilometer stretch of outlets and hotels boasting brands including Michael Kors and Abercrombie & Fitch. In its annual report, the company says the mall is worth S$585 million. Behind the property is StarHub Centre, a 10-story office block that the company bought for S$380 million in July 2010 for redevelopment into a high-end residential and retail complex.
According to the Singapore Tourism Board, Orchard Road is the most visited tourism attraction in the city.
F&N’s mall offers a buyer the potential for redevelopment, said Goh Han Peng, a Singapore-based analyst at DMG. Built in 1983, The Centrepoint is now surrounded by modern shopping complexes, including Sydney-based Lend Lease Group’s 313@Somerset and the Ion Orchard, jointly owned by CapitaLand and Hong Kong’s Sun Hung Kai Properties Ltd.
“A location like Centrepoint will always be in demand,” he said. “This development is iconic and would appeal to a foreign developer.”
The property unit also includes Frasers Hospitality, which owns 12 serviced residences and manages 35 others in Australia, China, Indonesia, the U.K., Philippines, Scotland and Singapore, the annual report shows. Serviced properties, popular with executives staying for weeks or months, are furnished like a home and have the housekeeping staff and security of hotels. The apartments are worth about S$1.2 billion, CIMB Group Holdings Bhd. said in an Aug. 21 research note.
“There’s always demand for serviced residences in growth markets where there’s a lot of business flow, particularly in this part of the world,” said Goh, who thinks the entire property business may be worth up to S$7 billion to a buyer.
F&N also has stakes in five suburban malls, two office buildings and four properties in China and Vietnam. It has seven residential projects in Singapore due to be completed in the next two years and land that could support 3,000 housing units, according to the annual report.
F&N may choose instead to spin off certain real-estate assets in a public offering, rather than a sale, as it did with Singapore-listed Frasers Centrepoint Trust and Frasers Commercial Trust, said Julius Baer’s Chua.
Still, the Singapore properties may prove appealing to foreign acquirers as a rising population and tourism drive up rents, said Bryan Go, an analyst at Phillip Securities Pte.
Apartment rents have surged 50 percent with an influx of expatriate workers raising the city’s population to a record 5.2 million last year from 4.4 million in 2006, according to data compiled by Bloomberg. Singapore has the highest prime retail rents in Southeast Asia, with costs above those in Geneva and San Francisco, data from CB Richard Ellis Group show.
“Foreigners coming to Singapore for work and business, along with infrastructure developments across the island, should support residential property prices,” Go, who is based in Singapore, said in a phone interview. “If tourism continues to perform well, retail rents should continue to hold up.”
The most likely suitor for Frasers Centrepoint is Southeast Asia’s biggest property developer, Singapore-based CapitaLand, according to Gibson at Henderson.
“If you look at F&N property assets, it has the look and feel of a CapitaLand,” he said. “Few people should know the diversified real-estate space in Singapore better than CapitaLand. They could do something with all of F&N’s assets, which very few players can do.”
Like F&N, CapitaLand has retail centers across Singapore. It also owns Ascott Ltd., operator of about 22,000 serviced residences in Asia, Europe and the Gulf region, according to its website. It may find uses for F&N’s assets, such as including them in existing real estate investment trusts, Gibson said.
“With a strong balance sheet including a strong cash position of S$5.1 billion, CapitaLand is always open to exploring opportunities in markets where we have presence,” the company said in a emailed statement on Sept. 6, when asked if it was interested in buying F&N assets.
Other potential bidders include TCC Group Co., controlled by Thai billionaire Charoen Sirivadhanabhakdi, chairman of ThaiBev, according to Religare’s Goeyardi. Another is Cheung Kong, said Goh of DMG.
Cheung Kong is owned by Asia’s richest man, Li Ka-Shing. The company’s Singapore joint venture, which includes Hongkong Land Holdings Ltd. and Keppel Land Ltd., has said it may buy land in downtown Singapore.
Winnie Cheong, a Hong Kong-based spokeswoman for Cheung Kong, declined to comment on its interest in Frasers Centrepoint. Wallapa Traisorat, chief executive officer of TCC Land Pcl, a property arm of TCC Group, couldn’t be reached at her office for comment.
“There are clearly lots of angles here, and lot of things you can do with this,” said Henderson’s Gibson. “If people have a view that the assets are mismanaged or under-managed, then there’s upside to come from the purchase of the assets.”
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