Published September 26, 2008

Is real estate a real break for Thakral?


MOST observers would agree that this is hardly the best time to be in the property business. With economic growth slowing, stock markets see-sawing, credit tightening and construction costs rising, even the big boys in the industry are bracing for tougher times ahead.

But against the tide of challenges, Thakral Corporation could be divesting its core consumer electronics distribution business to reposition itself in real estate.

Is this a good move and should shareholders support it?

This move will not be put to a vote when Thakral's extraordinary general meeting takes place on Oct 15. That EGM will, instead, consider the removal of Thakral's chairman, Kartar Singh Thakral, as a director. Nonetheless, shareholders should use the occasion to question management on the repositioning plans.

On the surface, Thakral looks all set for this directional change. Hong Leong Group, with a 34.42 per cent major stake, has a strong stable of property and hospitality units. Thakral could capitalise on its strengths to grow in the real estate sector.

In fact, Thakral said in its repositioning statement in May that it would 'tap into the significant expertise and deal flow of its key shareholders, who have extensive expertise in real estate and infrastructure'.

But sources tell BT that Hong Leong did not drive the move and actually prefers to strengthen Thakral in its existing business. This implies two things.

One, consumer electronics distribution may still offer earnings potential. Two, Thakral shareholders who have been counting on Hong Leong's support should now reassess the shift.

Thakral may still have a chance at excelling in real estate if it has the backing of another strong industry player. Going down its list of key shareholders, the next candidate appears to be Babcock & Brown, with an 8.93 per cent stake as at March. Part of Babcock's business involves buying property assets and bundling them into funds to earn management fees.

Unfortunately, the Australia-based Babcock seems to have its hands full with other issues. As the sub-prime crisis grew, concerns about its ability to raise funds and pay debt battered its share price to as low as A$0.76 (S$0.91) this month from more than A$26 a year ago. The company also underwent a series of board and management changes as part of a strategic review.

Shareholders would have some cause for concern if Thakral intends to rely on Babcock for support in the property business.

Asked about Babcock's stand on Thakral's repositioning, an executive at Babcock's Singapore office only said that the firm would back plans which are in its interest as a shareholder.

Some investors may welcome news of the business shift given that Thakral's performance in consumer electronics distribution has been weak.

Nevertheless, it is risky to support a complete move into real estate before Thakral reveals more details. In fact, one speculation in the market is that internal divergence on this could be why Hong Leong called for the EGM to remove Thakral's chairman.

Shareholders need more information from Thakral before they can decide if repositioning is the right move. They will have a chance to approach management for answers at the upcoming EGM, and they should seize it.