Would It Make Sense For These Listed-Subsidiaries To Be Taken Private By Their Listed-Parents?

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?

The airline and the maintenance crew

Mention Singapore Airlines Ltd (SGX: C6L) and it makes perfect sense to think that the airline derives the bulk of its earnings from flying passengers and cargo around the world.

But, what’s interesting here is that aircraft maintenance, repair, and overhauling outfit SIA Engineering Company Limited (SGX: S59), a 77.6%-owned subsidiary of SIA, is actually the one providing the bulk of the airline’s profits over the past few years.

In the financial year ended 31 March 2012 (FY2012), SIA Engineering contributed 67.8% of SIA’s earnings. In FY2013 and FY2014, the percentages were 61.2% and 62.6% respectively.

The services provided by SIA Engineering include:

  • Aircraft maintenance and overhaul
  • Line maintenance and technical handling
  • Component maintenance and overhaul
  • Fleet management programme
  • Engine overhaul
  • Passenger-to-Freighter conversion
  • Cabin modifications
  • Training academy
  • Aircraft painting

In essence, it means that what’s currently profitable for SIA is not what the customer experiences up front (flying with the airline). Instead, it’s everything else that is happening in the background.

From SIA’s vantage point – with the listed SIA Engineering already contributing the lion’s share of the airline’s overall profit – it might make sense to privatise the aircraft engineering outfit in the future.

The mother of all complexities

In my personal view, there is a corporate group in Singapore which is ripe for some restructuring to take place. And that group is none other than the Jardine group of companies.

Two of the largest entities within the group are the conglomerates Jardine Matheson Holdings Limited (SGX: J36) and Jardine Strategic Holdings Limited (SGX: J37). These two companies though, actually own majority stakes in each other and such cross-holdings can make the head of any investor spin. You can find out more about these two companies in here.

Both Jardine Matheson and Jardine Strategic are actually very similar companies in nature and it might actually be beneficial for both their existing shareholders (and future investors) if they merge and simplify their corporate structure.

For now though, all we can do is hope.

Foolish Summary

There are many more companies listed in Singapore with a parent-and-subsidiary relationship akin to Keppel Corp and Keppel Land. If the valuations for some of the subsidiaries continue to be depressed, like in Keppel Land’s case, it wouldn’t really be a surprise to see a wave of further privatisation offers emerge from other companies in the future.

I’ve taken a look at other parent-companies and their respective listed-subsidiaries, so do take a look at them in here.

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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 writer Stanley Lim owns Keppel Corporation Ltd