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Waiting for Lippo’s next move on OUE

Posted on 12 Mar 2010 | Comments Off

LIPPO Group has positioned itself in a pretty sweet spot by buying out ex-partner Ananda Krishnan’s stake in Overseas Union Enterprise (OUE), and upping its hold on the property company to 88.52 per cent.

With the deal, it has just enough interest to effectively dictate OUE’s direction – and also all the time it needs to decide whether to delist the latter, or turn it into a stockmarket darling.

For now, Lippo is unlikely to take OUE private. If history shows anything, it is that Lippo sees some worth in letting the latter stay listed.

When Lippo first joined hands with Mr Krishnan to buy into OUE in 2006, a general offer was triggered. OUE Realty (the 60:40 joint venture between Lippo and Usaha Tegas) ended up with a 94.51 per cent stake in the property company.

Under Singapore Exchange (SGX) listing rules, the free float of a company’s shares cannot fall below 10 per cent. OUE Realty was short of just another 5.49 per cent to take OUE private, and it could have paid just $10.20 a share, but it did not do so. Instead, it placed out new shares at a slightly higher $10.50.

Compare this with today’s situation, and it would seem like there is less incentive for Lippo to delist OUE. First, Lippo would have a larger stake of 11.48 per cent out there to buy. Second, OUE’s share price has increased since; it was $11.14 at market close yesterday. The price has stayed above $11 after Lippo paid that amount per share for Mr Krishnan’s stake on Tuesday.

History aside, there could be other restrictions at play. To part-finance the $957 million buyout of Mr Krishnan’s shares, Lippo had to borrow from banks. One would never know if the loans came with certain covenants, such as a requirement to keep OUE listed.

Most unequivocally, Lippo said on Tuesday that it aims to keep OUE listed. Of course, it is a case of ‘never say never’ in the business world, and it takes only the right price to get anything done. But so far, the signs point to OUE staying on the exchange.

Lippo stands to gain in some ways from this. There are the usual benefits which accrue to listed companies – the ability to raise funds from shareholders or issue debt, just to name a few.

The question now is whether Lippo would be keen to spur investor interest in OUE. More trading in the counter could help it reach its full value, which would ultimately benefit Lippo, the majority shareholder.

This would be hard without raising OUE’s free float, which is just slightly over 10 per cent. The good thing for Lippo is that unlike four years ago, when regulators were breathing down its neck, it is in no hurry to decide whether to place out more shares. It can wait for an attractive price to come about before doing so.

Apart from bringing more shares into the market, Lippo would also need to convince investors of OUE’s potential. There are still lingering doubts over the health of Singapore’s property market. And some analysts even suggested that cashing out was a smart move by Mr Krishnan, given the possibility that OUE’s earnings would come under pressure later from a possible oversupply of hotel rooms in Singapore.

But in all, it would be fair to say that Lippo has gotten itself into a rather comfortable driver’s seat at OUE. The market will be keeping its eyes peeled for what plans Lippo has for the company next.

Source : Business Times – 12 Mar 2010

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Posted in Developers

Tagged Lippo, Lippo Group, Overseas Union Enterprise (OUE)

Krishnan may break even but disputes linger

Posted on 11 Mar 2010 | Comments Off

Ties with Lippo had crumbled; TV issue may still go through Indonesian courts

THE sale of a 44 per cent interest in Overseas Union Enterprise (OUE) for $957 million will bring closure to a five-year partnership between two South-east Asian tycoons that went sour. But it is unlikely to catalyse the resolution of any business differences that remain.

On Tuesday, Indonesian James Riady’s Lippo group doubled its interest in OUE, Singapore’s second largest hotel operator, following a deal to acquire an effective 44 per cent from his estranged Malaysian partner T Ananda Krishnan. Lippo paid Mr Krishnan’s privately held Usaha Tegas (UT) group $957 million, or $11 per OUE share.

The price was a reasonable reflection of market conditions, analysts said. But an executive familiar with Mr Krishnan’s style said that the tycoon – considered the second richest man in Malaysia after billionaire Robert Kuok – probably broke even.

‘It’s a wash,’ he told BT on condition of anonymity. ‘UT paid $10.20 a share and then you have to consider three years of financing at 4 per cent. So I’d say they came out even.’

Other analysts said that the deal could have mitigated any downside risk Mr Krishnan might have faced from a possible oversupply of hotel rooms in Singapore in the future. The completion of the integrated resorts (IRs) is expected to add over 4,000 hotel rooms to the island, adding pressure on OUE’s earnings from the increased competition.

Even so, the deal had been brewing for some time. The two partners had disagreements over strategy and the future direction of OUE, and Mr Krishnan’s allies had complained of having little say in the firm’s management. That came atop festering problems that had begun over a failed satellite-TV business in Indonesia.

In fact, two weeks ago Mr Krishnan’s Astro All-Asia Networks won US$230 million from a Singapore arbitration panel in a claim against Lippo in Indonesia. Astro, a listed satellite-TV operator in Malaysia, had written down over RM1 billion (S$419 million) in relation to the Indonesian venture.

The OUE disagreements had been heading that way with the matter already under arbitration in Singapore – over differences in the interpretation of the original shareholder agreement – when the deal was brokered.

The transaction brings to a close a five-year partnership that had initially promised to become a regional powerhouse in telecommunications and property. But it may not be altogether amicable for it does not imply an easy resolution to, say, the Astro award which has to wend its way through the Indonesian courts.

Indeed, for the award to be recognised there, it has to be registered first with Indonesia’s Supreme Court – which isn’t a given. ‘This sale is completely divorced from the Astro award,’ said the executive. ‘For that, Astro has to go through the process, and it has said it will do what it takes.’

The partnership began in 2005 when a joint venture was set up to operate a pay-TV business through a Lippo unit. The business was enmeshed in problems from the start, apparently, but it didn’t seem to stop the partnership from flourishing elsewhere.

Later that year, Maxis Communications, Mr Krishnan’s listed Malaysian mobile phone unit, bought a controlling 51 per cent interest in Lippo’s cellular phone firm Natrindo for US$100 million. The next year, the partners once again joined forces in Singapore to acquire control of OUE for $1.8 billion.

In 2007, Maxis bought out Lippo completely in Natrindo for US$124 million. This happened while there was friction over at the pay-TV business over unpaid services.

The clincher took place two months later when Mr Krishnan took Maxis private in Malaysia’s biggest deal ever. A little later, he brought in Saudi Telekom, which took up 25 per cent of Maxis and 51 per cent of Natrindo in a deal worth US$3.05 billion.

It incensed Mr Riady and, according to some news reports, his allies accused Mr Krishnan of having lined up the Saudi telecom firm before taking over Natrindo. It is a claim that Mr Krishnan’s camp has refuted.

Source : Business Times – 11 Mar 2010