SPH: Outlook deteriorating since Russia invasion of Ukraine

Singapore 50 dollar bill

SPH CEO Ng Yat Chung said the operating environment for the property company has deteriorated since Russia’s invasion of Ukraine in late-February, citing the volatile outlook as a reason for shareholders to accept Cuscaden Peak’s bid for the company. 

“The Cuscaden Scheme represents an opportunity for you to realise your investment in SPH,” Ng told shareholders on Friday, according to minutes of the SIAS-SPH virtual information session, which were filed to SGX Wednesday. 

The outlook has become more uncertain, Ng said.

“Until 24 February 2022, the operating environment was seeing gradual improvement from the worst of Covid-19. We see interest rates going up which will affect our cost of borrowing, and Covid-19 is still affecting different parts of our business at different rates,” Ng said. 

Ng noted the nursing homes have been harder hit by Covid because medical costs to protect residents have risen, and more care is needed in taking on additional residents because of infection risks. 

The purpose-built student accommodation (PBSA) segment has not been much affected by Covid, and the retail and commercial businesses, such as SPH REIT, and some malls are “in between,” Ng said, according to the transcript of the question and answer session. 

‘Significant changes’ post-invasion

However, since Russia’s invasion of Ukraine, “the world has seen some significant changes,” Ng said.

See updates on Russia’s invasion of Ukraine.

“The question is not whether there is serious impact due to the invasion. The question is whether the impact will be serious or disastrous. The question is whether the impact is short term; days, weeks, months, or even years,” Ng said, noting Singapore Senior Minister Tharman Shanmugaratnam sees a real risk of stagflation — or a period of high inflation and slow or negative economic growth. 

“Even though SPH is not directly affected by the war, we have to deal with the ripple effects or second order effects of cost inflation, the impact on consumer spending and the impact of higher costs,” he said.

Cuscaden’s bid

Cuscaden Peak’s bid — which values SPH at around S$3.9 billion — will give shareholders the choice of either S$1.602 in cash and 0.782 SPH REIT unit valued at S$0.798 each, or an all-cash offer of S$2.36, based on unit prices at the time the offer was made.  

Previously, Keppel Corp. had sweetened its bid to acquire SPH to S$2.351 a share, in a cash-and-share offer, topping its previous bid of S$2.099 and a competing bid of S$2.10 in cash from Cuscaden Peak. Keppel’s second offer had increased the cash component by S$0.20 a share, to S$0.868, as well as including 0.596 Keppel REIT unit and 0.782 SPH REIT unit.

In mid-February, SPH received the go-ahead from the Singapore court to convene a meeting for its shareholders to vote on the Cuscaden Peak bid, short-circuiting Keppel’s efforts to call a vote by SPH shareholders on its competing bid. 

Keppel had filed a notice of arbitration filed with the Singapore International Arbitration Centre (SIAC) after SPH had moved to terminate consideration of Keppel’s offer. 

At the information session, SPH’s Ng said that the only bid the company considers as currently on the table is the offer from Cuscaden Peak. 

David Gerald, who is CEO of SIAS, noted at the information session that regardless of the outcome of arbitration, Keppel’s bid for SPH would not be put before SPH’s shareholders.

If shareholders vote in favor of the Cuscaden bid, shareholders would likely receive payment in early May, Ng indicated.

Who is Cuscaden Peak?

The consortium bidding against Keppel, called Cuscaden Peak, includes Tiga Stars, a wholly owned subsidiary of tycoon Ong Beng Seng’s Hotel Properties, and Adenium, which is a wholly owned subsidiary of Temasek portfolio company CLA Real Estate Holdings, as well as Mapletree Investments‘ indirect wholly owned subsidiary Mapletree Fortress. Mapletree Investments is wholly owned by Singapore state-owned investment company Temasek.

Cuscaden Peak is 40 percent owned by Tiga Stars, 30 percent by Adenium and 30 percent by Mapletree Fortress. Tiga Stars is 70 percent owned by Hotel Properties, with the remainder held by Como Holdings, which is ultimately owned by Ong Beng Seng, who is the controlling shareholder of Singapore-listed Hotel Properties. Adenium is wholly owned by CLA Real Estate Holdings, which is an independently managed portfolio company of Temasek.

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