Is this an Early Christmas Present for Shareholders of Boustead Singapore Limited?

Shareholders of Boustead Singapore Limited (SGX: F9D) may have something to cheer about this Christmas.

The infrastructure-related engineering services and geo-spatial technology group said on Tuesday that it will decouple its real estate solutions business, mainly Boustead Projects Pte. Ltd., from its main group and list it separately. This is following the initial announcement made early this month.

Boustead largely provides 1) engineering services such as energy-related engineering to the oil & gas sector; 2) real estate solutions such as industrial and commercial real-estates – under Boustead Projects; and 3) geo-spatial technology for commercial entities and governments.

Boustead Projects itself has three main segments. It designs and builds industrial and commercial properties; develops industrial properties for lease or sale; and has joint ventures and partnerships to develop and invest in real estate projects.

Details of the demerger

Boustead Projects Pte. Ltd., which is a wholly-owned subsidiary of Boustead Singapore, and other related subsidiaries, will be demerged and listed on the Singapore Exchange by a way of introduction. This is different from an initial public offering where shares are offered to the public for subscription. Fraser and Neave Limited (SGX: F99) did a similar exercise to list Frasers Centrepoint Ltd (SGX: TQ5) early this year.

Shareholders of Boustead Singapore do not have to folk out a single cent to have a piece of the action. They will receive Boustead Project’s shares as distribution in specie of up to 49% of the issued share capital of Boustead Projects held by Boustead Singapore. The rest, at 51%, will still be held by Boustead Singapore.

The demerger is subject to approvals from shareholders and relevant authorities.

Good or no good?

One of the reasons for decoupling Boustead Projects from the main group is to unlock shareholders’ value. By hiving off the real estate arm, the market may be able to better value the business and let it trade at a higher valuation. The current gripe is that the market does not appreciate Boustead Singapore as it is hard to comprehend, with three different businesses under one umbrella.

However, the demerger may be a double-edged sword. Shares at Boustead Singapore is not volatile due to the reason that it consists of three different businesses. When one business segment does not do well, the other two business segments can help to cushion the impact.

With the plunging oil prices, the energy-related division may get a hit. However, since there are the other two businesses, the risks can be mitigated. Year-to-date, Boustead Singapore is up around 7%. The same share performance cannot be attributed to other companies related purely to the oil and gas industry.

Having said that, 51% will still be held by Boustead Singapore and that could help to pacify shareholders who are concerned about the demerger.

Foolish Takeaway

From their past undertakings, Boustead’s management has been very cautious with their moves. Hopefully the demerger will bode well for the firm and its shareholders in the long run. The market seems to appreciate the move as Boustead Singapore’s shares are up some 4% since the close of S$1.715 on Tuesday.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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 Boustead Singapore Limited.