STC owns properties and its property business is driven by its subsidiary, Straits Developments Private Limited. It has a hospitality business, which manages and operates a stable of hotels in Asia Pacific. Through its subsidiary, Malaysia Smelting Corporation Berhad (SGX: NC9), Straits Trading also engages in tin mining and smelting, and resource investments.
ARA, an affiliate of the Cheung Kong group, is an Asian real estate fund management company focused on the management of public-listed real estate investment trusts (REITs) and private real estate funds. It also offers corporate finance advisory services.
The strategic alliance will involve three key initiatives:
1. STC will acquire 20.1% of the issued capital of ARA for a sum of around S$294.4 million from Cheung Kong Investment Company Limited and a company wholly‐owned by Mr John Lim, Chief Executive Officer of ARA, JL Investment Group Limited. JL Investment will receive a combination of S$156.1 million in cash and 13.7 million new shares in STC (each priced around S$3.65 or for a total of S$50.0 million) while Cheung Kong will receive S$88.3 million in cash.
2. Formation of a co‐investment vehicle between STC and Mr Lim, on an approximately 90%- 10% basis respectively, to undertake new fund product launches by ARA Private Funds. There will be a capital commitment of up to S$950 million. The co‐investment vehicle will provide seed capital commitments for property funds, which will be managed by ARA.
3. ARA will also manage STC’s entire investment property portfolio (other than hospitality‐related assets) as a separate account.
Currently, Cheung Kong has a 13.9% stake in ARA while Mr Lim owns 33.3% of the company. After STC acquires 20.1% of ARA, the stakes will be pared down to 7.8% and 19.3% respectively.
Shareholders of both companies may see this as a win-win situation. STC feels that the acquisition of a 20.1% stake in ARA is in-line with the strategy of acquiring a sound, well managed business to form a new growth engine for the company. This strategic alliance follows some divestments it undertook this year to unlock shareholders’ value. It had divested a 40.6% stake in WBL Corporation Limited to United Engineers Limited (SGX: U04) for around S$1.25 billion and sold off the Rendezvous Grand Hotel Singapore to Far East Hospitality Trust (SGX: Q5T) for S$264.3 million.
As for ARA, the formation of the co‐investment vehicle are expected to provide seed capital commitments to support new private real estate fund products by ARA, allowing ARA to further expand its private funds business.
Both the companies’ shares were halted from trading yesterday pending announcement. On Friday, Straits Trading closed at S$3.65 and ARA closed at S$1.75.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in ARA Asset Management Limited.