Alibaba Takes Another S$187 million Bite Of Singapore Post Limited Stock: Here’s What Investors Should Know

Chinese online retailing giant Alibaba is looking to take another S$187 million stake in local logistics and mail services operator Singapore Post Limited (SGX: S08).

Yesterday, Singapore Post sent out a circular to seek approval from its shareholders to issue around 108 million shares to Alibaba in exchange for S$187 million.

To be sure, Alibaba and Singapore Post are not strangers.

In July 2014, Alibaba invested S$312.5 million to gain an ownership stake of around 10% in Singapore Post. Then, on 27 October 2016, Alibaba put in S$91.7 million to acquire a 34% stake in Quantium Solutions, a Singapore Post subsidiary. (Singapore Post owns the remaining 66% stake in Quantium Solutions.)

An opportune time

Alibaba’s latest investment could be coming at an opportune time for Singapore Post. After all, Singapore Post is looking to invest at least S$177 million into the redevelopment of its SPC Mall and eLogistics hub. The company might thus welcome having more cash in its coffers.

As of 30 September 2016, the logistics and mail services operator has S$158 million in cash and equivalents but total borrowings of about S$406 million. This gives it a net debt position of S$248 million.

Changing with the times

Singapore Post is targeting to close the Alibaba deal before the end of February next year. Here’re some quick highlights:

  1. Alibaba is offering S$1.74 per share for around 108 million shares. After expenses, this should net Singapore Post S$183 million. Upon completion, Alibaba’s stake in Singapore Post will rise to 14.4%, up from 10.2% before the deal. Singapore Telecommunications Limited (SGX: Z74) will have 21.7% ownership of Singapore Post after the Alibaba deal concludes and will thus still remain as Singapore Post’s largest shareholder.
  2. Singapore Post cited synergies for both parties. It said that Singapore Post and Quantium Solutions will benefit from a rise in profile among customers. The deal can also accelerate existing and new revenue generating activities between Alibaba and Singapore Post.
  3. Singapore Post added that the infusion of cash will strengthen its capital base and enable it to capitalize on potential acquisitions and to continue its long-term growth and expansion plans.

If the deal goes through, investors will have to observe how Singapore Post puts the new cash into use.

For more stock analyses and investing tips, you can sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can 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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.