One of the biggest events taking place in Singapore’s stock market currently is Keppel Corporation Limited’s (SGX: BN4) attempt to take its listed-subsidiary Keppel Land Ltd (SGX: K17) private. My colleague Chong Ser Jing had gone into some detail about what the privatisation offer means for both companies involved. You can find out more in here and here. This recent development with Keppel Corp and Keppel Land has got me thinking about other Singapore-listed shares which also share a similar parent-and-subsidiary relationship. Would it make sense for other Singapore-listed companies to privatise their own Singapore-listed subsidiaries as well? Déjà vu There’s actually another company in Singapore…
This recent development with Keppel Corp and Keppel Land has got me thinking about other Singapore-listed shares which also share a similar parent-and-subsidiary relationship. Would it make sense for other Singapore-listed companies to privatise their own Singapore-listed subsidiaries as well?
There’s actually another company in Singapore that has similar lines of businesses to Keppel Corp and it is none other than SembCorp Industries Limited (SGX: U96).
Keppel Corp has interests in offshore & marine engineering, infrastructure assets, and real estate ownership and development. It’s the same with Sembcorp Industries, except that it does not really participate in the real estate segment.
In fact, Sembcorp Industries’ listed-subsidiary, Sembcorp Marine Ltd (SGX: S51), can actually be considered a direct competitor to Keppel Corp’s offshore & marine business segment. Sembcorp Marine, which is currently 60.6%-owned by Sembcorp Industries, contributed to slightly more than half of its parents’ total profit and revenue in 2013.
With the sharp falls in the price of oil taking hold since last year, SembCorp Marine has also understandably suffered. The marine engineering outfit has seen its share price decline by almost one-third to S$2.99 since the start of 2014.
At its current price, Sembcorp Marine’s only valued at 11 times its trailing earnings and caarries a dividend yield of more than 4%.
From a PE-ratio-perspective, Sembcorp Marine’s actually trading at one f its lowest value points over the past two-plus years since early 2012. The low valuation suggests that it may be a good time for Sembcorp Industries to privatise Sembcorp Marine if the former so wishes.
The bank and the insurer
Oversea-Chinese Banking Corp. Limited (SGX: O39) is one of the largest banks in Singapore. It also owns one of the largest insurance companies here in Great Eastern Holding Limited (SGX: G07). Currently, OCBC owns more than 87% of the regional life insurer.
The two financial institutions actually have businesses that are interlinked in many areas. In fact, OCBC is one of the largest distributors of Great Eastern’s products through a bancassurance agreement between the two parties.
Since Great Eastern only has a public float of about 13%, OCBC could, in theory, easily take the insurer private. This is especially so given that a 13% share of Great Eastern’s current market capitalisation of S$11.4 billion is a tiny drop in OCBC’s total assets of S$392 billion (as of 30 September 2014). Thus, it might make sense for OCBC to privatise Great Eastern in the future.
There’s certainly no current indication whatsoever that Sembcorp Industries and OCBC are actually considering privatising their aforementioned listed-subsidiaries. But, it could still be a good exercise to look at what makes sense when it comes to potential acquisitions or mergers.
I’ve taken a look at more companies which share a parent-and-subsidiary relationship akin to Keppel Corp and Keppel Land, so do check them out here.
For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.
Like us on Facebook to follow our latest hot articles.
The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Keppel Corporation Ltd