Despite concerns on the debt ratios, Keppel Land is generating $712m through a rights issue. This has surprised some despite several reports of a possible cash call this year, as rights issue prospects were allayed.
Yesterday, Keppel Corporation’s property arm announced its plan to present a rights issue of 9-for-10 at $1.09 apiece, making up a 53.7 percent discount to the $2.35 (per share) post-rights issue NTA or net tangible assets of the company.
About $373m will be spent by Keppel Corp in order to invest in its allocation. It will also absorb around 90 percent of the unsubscribed rights under an agreement with Merrill Lynch.
The net tangible assets of the company will decrease by 32.9 percent (from $3.50 to $2.35) due to the rights issue. It will also cut-off the company’s net debt-to-equity ratio from 0.52 times to 0.22 times, beating the gearing of CapitaLand’s of around 0.32 times post-rights issue. Additionally, it would increase the company’s cash to more than a double.
There were murmurs that the company would prefer this funding route subsequent to the move of CapitaLand and CapitaMall (CapitaLand’s subsidiary) to raise $3b in February.
Some of the reports of the analysts had remarked that TLCs or Temasek-linked companies like Keppel Land may be producing cash calls, following the announcement of other TLCs like DBS and Chartered Semiconductor Manufacturing of their right issues. UOB Kay Hian analysts stated, “While Keppel Land’s management recently denied a planned rights issue, the risk of a cash call still exists”.
However, the current surge in Keppel Land’s shares informed market watchers that rumours were put out. Keppel Land saw a 35.3 percent increase in its shares in the previous month, exceeding by 21 percentage points the index.
Early meetings between Keppel Land and Merrill Lynch were held since the year’s onset, but details were confirmed just recently. A spokeswoman of the company disclosed that Keppel stated that a rights issue was not needed during the results briefing in January.
“Since Keppel Land’s results announcements on Jan 21, 2009, the economic situation has seen more volatility,” the spokeswoman said. “In the current market, there are more attractive opportunities and strengthening our financial position would allow us to capitalise on them”.
The funds are likely to be used as shock-absorber against Keppel’s writedowns on its office portfolio, according to an analyst from a local bank. Donald Chua, CIMB-GK analyst, said that majority of the funds may be used as Ocean Financial Centre’s and the second phase of Marina Bay Financial Centre’s development capex. Mr. Chua also said in a report that financing such projects would “hinge on new home sales” in the middle of the current halfhearted property market.
“Nowadays, gearing is probably a dirty word”, Mr. Chua said to BT. The analyst also noted that drawing on loans for their office projects could also be considered by Keppel Land as these are un-geared, though he added that he’s “sure Keppel Land is able to borrow at pretty decent and manageable rates so in that aspect, the shareholder value in terms of NAV (net asset value) and earnings per share is very much diluted”.
DMG & Partners Securities analyst Brandon Lee said that landbank expansion in Singapore and China could be viable for Keppel Land. Mr. Lee has a ‘neutral’ rating on the stock. However, any acquisition would roll up since asset prices are not that abated yet, said Mr. Chua, who has an ‘underperform’ call on the stock.
Keppel Land revealed a 38.8 percent fall in Q1 net profit to $36.9m in the last three days. An 8 percent drop in shares was seen by KepLand after they announced its rights issue the other day before it fell by 12 cents, closing at $1.76. While a 2.2 percent drop in shares was endured by Keppel Corp, ending at $5.89.