http://www.businesstimes.com.sg/comp...-property-play

HOCK LOCK SIEW

UE now a pure property play

Slimmed down, the conglomerate is ready to be sold; but whether a buyer will emerge is another matter

By Cai Haoxiang

[email protected]

@HaoxiangCaiBT

Feb 19, 2016


CONGLOMERATES have long been cursed with a discount as investors dislike how disparate businesses can be lumped confusingly together. In the case of United Engineers (UE), one of the oldest conglomerates in Singapore, this state of affairs is almost at an end.

With the sale of its Nasdaq-listed subsidiary MFlex to a Chinese buyer earlier this month, UE has become a pure property play holding on to freehold and long-leasehold assets in central or near-central locations.

Thus streamlined, the company, which had built historic Singapore landmarks like the Old Supreme Court Building and Cavenagh Bridge, is ready to be sold or packaged with another entity if necessary.

The last few years has seen UE sell assets like luxury car distributor Wearnes, engineering and construction group UE E&C, and a major leasehold industrial property in Changi.

One explanation is that UE's shareholders - OCBC, the bank's insurance unit Great Eastern, and its founding Lee family - wanted to unlock more value in the company with the aim of eventually selling it.

There is good reason to sell non-core assets, as regulators nowadays require banks and insurers to hold more capital.

Indeed, the OCBC stable entertained a bid for their UE stake from Thai tycoon Charoen Sirivadhanabhakdi, but talks had fizzled out by last February as both parties could not agree on the price.

One year later, it is not clear if there will be a buyer. Mr Charoen's decision not to buy then seems like a shrewd one. A slowing global economy and a risk-off stance by investors, an oversupplied office market, falling rents, along with the shadow of rising rates in the US, have caused property market sentiment here to weaken.

Developers like CapitaLand, City Developments and Frasers Centrepoint Ltd are trading at a 25-30 per cent discount to their net asset values. UE is no exception.

What shareholders can take comfort in is that after the dealmaking of the past few years, there are less moving parts for investors to value the firm on.

Any deal involving its properties can see also UE progressively realise value, as the properties are not likely to be sold at such big discounts to book. And UE's assets are not bad. Most importantly, short-leasehold assets are largely absent.

UE's biggest asset is its flagship UE BizHub City at the junction of Clemenceau Avenue and River Valley Road, which includes the UE Square shopping mall along with an office tower and a serviced apartments block. Another prime asset is UE BizHub Tower, formerly 79 Anson Road. There is also UE BizHub West, an industrial and commercial property along Alexandra Road that UE bought from computer giant Hewlett-Packard in a sale-and-leaseback transaction. These properties are at reasonably central locations and are freehold or on a very long lease, thus UE - or whoever owns them - can take their time to sell or redevelop them. The three properties alone weigh in at S$1.5 billion, or the bulk of UE's investment properties.

Then there are a couple of China development projects, which are due to be completed by 2018.

In all, the Singapore property market might be in a downturn, and developing properties in China adds more risks.

But UE's pedigree, along with how it has been streamlined in recent years, make it a counter to watch.