If M&A transactions defined years, then 2012 would clearly be the Year of Fraser & Neave (F&N) in Singapore. The various deals surrounding the company spanned seven or eight months, involved large numbers of lawyers (and nearly all of the major local law firms), and severely skewed the year’s M&A statistics. According to Thomson Reuters, deal value rose almost three-fold (176.5 percent) in Singapore from 2011, hitting a record volume of $47.2 billion and capturing 11.4 percent of Asia's target M&A. Much of it was due to the monster sizes of the deals in the F&N saga, which spilled over into 2013 as two parties battled for control of the F&B-and-property conglomerate.
Eventually, Thailand's TCC Assets Ltd, headed by billionaire Charoen Sirivadhanabhakdi, looked set to pull off Southeast Asia’s biggest acquisition. On Jan. 21, the group led by Indonesian tycoon Stephen Riady's Overseas Union Enterprise Ltd threw in the towel after the Thais raised their takeover offer for F&N. Charoen, who currently owns 42.5 percent of F&N, held through TCC Assets and Thai Beverage PCL (ThaiBev), offered S$9.55-a-share for stock that he does not already own. This in turn valued the Singapore conglomerate, which has a real estate portfolio worth more than S$8 billion ($6.52 billion) and soft drinks, dairy and publishing businesses, at around S$13.75 billion.
The complex saga, however, started last summer. In July 2012, ThaiBev acquired a 22 percent stake in F&N from Oversea-Chinese Banking Corporation (OCBC), raising its stake to 24.1 percent. A panicking Heineken, which had a share in beer maker Asia Pacific Breweries (APB), a joint venture with F&N, moved quickly to acquire a controlling stake in APB. In August, F&N accepted an offer from Heineken to acquire its stake in APB for $4.1 billion. But a bidding war with ThaiBev soon broke out, with ThaiBev and TCC Assets making a $7.1 billion cash offer for F&N. The melee became even more chaotic after Japanese brewer Kirin Holdings, which owns a stake of around 14.8 percent in F&N, offered to buy the conglomerate’s F&B business for S$2.7 billion, and OUE also got involved. Eventually, Heineken confirmed its 95.3 percent stake in APB, but the battle for control of F&N continued into the New Year with Charoen emerging triumphant (pending shareholder approval).
Not surprisingly, there were a number of law firms involved. WongPartnership acted for the triumphant ThaiBev, Rajah & Tann represented OCBC, Heineken instructed Duane Morris & Selvam, Drew & Napier acted for OUE, and Stamford Law Corporation represented the much-sought-after F&N. “We’ve been right in the centre of the F&N deal,” says Lee Suet Fern, senior director at Stamford Law. “We saw the 2010 acquisition by Kirin of Temasek’s stake, then we saw the acquisition by the Thais of the OCBC stake, and then we saw the fight between the Thais and Heineken for APB; and now we’ve seen the fight for the control of F&N between the Indonesians and the Thais. On account of F&N, we believe we have seen virtually every law firm in town in some role or the other, representing different parties.”
F&N and beyond
According to Ng Wai King, partner at WongPartnership, one of the big trends seen in the aftermath of the F&N transactions was the revaluation of Singapore’s F&B companies. “Everyone who has a stake in a Singapore F&B company believes that it was worth more,” he says. “As a consequence of that one transaction, the value of Singapore F&B companies has risen a few fold as well.” He cites the example of local beverage company Yeo Hiap Seng, the share price of which has shot up astronomically. “We should see this trend as long as foreign companies continue to have a major look at Singapore,” he adds.
And the F&N-related deals were not the only major deals in the F&B sector last year. In December, Swiss chocolate maker, Barry Callebaut, agreed to pay $950 million in cash for the cocoa business of Singapore group Petra Foods, which makes cocoa liquor, butter and powder and generated revenues of $1.3 billion in 2011. The deal will make Barry Callebaut, already the world's biggest maker of finished chocolate products for clients such as Nestle and Hershey, the biggest processor of cocoa too. “These are, in a way, related to the commodities or resources side of the business. And that is an industry that has continued to get a lot of focus,” says Ng.
Lee says that while F&N as a whole has been the defining deal for Singapore, it doesn’t mean that the rest of the market hasn’t been extremely busy. “As a firm, we have seen a record number of deals,” she says. “It has been a bumper year.” In particular, she has seen a large number of privatisations through private equity deals. And aside from F&B, sectors that have been popular in Singapore and across the region include insurance, banking and finance, consumer goods, healthcare, and coal and natural gas, she says.
Lee adds that one notable trend in the past year has been the much higher visibility of global private equity funds in Singapore. “Some of the big players like KKR, who originally used to run deals primarily out of Hong Kong, opened up offices in Singapore to run Southeast Asian deals from here,” she says. “This is evidence that the whole of SE Asia is getting very interesting.” In early January this year, KKR invested an additional $200 million in Vietnam's noodle and fish sauce retailer Masan Consumer Corp, the largest single private equity investment in that country.
Inbound interest
Foreign acquisitions targeting Singapore-based companies reached a record high of $27.2 billion last year, up three-fold compared to 2011, according to Thomson Reuters data. Ng says that while this was again distorted somewhat by the F&N numbers, there were other examples of foreign companies acquiring Singapore targets, such as Thailand's national energy company PTT, which in August 2012 made a $960 million offer for the remaining 55 percent of Singapore-listed Sakari Resources Ltd that it did not own. “Barry Callebaut, from Switzerland, was also a foreign company,” says Ng. “A lot of the large transactions were done by foreign buyers. We were opposite KKR when they sold Unisteel to another Swiss company called SFS for an undisclosed sum. Swiss companies have been very keen on Singapore.”
There are a number of reasons why Singapore companies are popular, says Ng, and governance is at the top of the list. “I think Singapore companies are reputable companies generally, given our regulatory framework, and the way our companies are managed,” he says. “I think it gives comfort to acquirers to know that in the case of a Singapore public company, or even a Singapore private company, regulations are closely complied with by the people running it. There is less likelihood for any fraud, or fraudulent behaviour on the part of managers or the controlling shareholders.” Stamford Law’s Lee agrees: “This is a place where there’s considerable transparency in a region where there’s very little transparency; where there are clear, predictable rules, regulations and legislation,” she says.
For Ng, another aspect is that Singapore companies have the benefit of taking advantage of the incentives and tax framework that companies here enjoy. “So what it means is that a lot of companies are bought up in Singapore with the plan to have operating subsidiaries overseas,” says Ng. “So when you’re buying a Singapore company, you’re not just buying a Singapore business, you’re buying a business across the region.” One example of this is F&N, which owns a 55 percent stake in Myanmar Brewery Ltd, a joint venture that produces Myanmar Beer, the country's best-selling beer.
Additionally, for Lee, the interest in Singapore is reflective of the new position of Singapore as the heart of Southeast Asian business. “We’re seeing it in a demonstrable way right now, but Singapore has over the last five years, particularly over the last three years, become the obvious platform for Southeast Asia,” she says. “I think we all realize the thrilling prospects of a country like Indonesia. Singapore tends to be the foothold from where to do Indonesian deals, and even the Indonesians are quite happy to do their deals here as well. Then there are the other exciting ASEAN economies like Myanmar – where everyone seems to be headed now – and Vietnam as well.”
And Ng says that the trend is set to continue. “Across a number of sectors – F&B, commodities, banking and so on – there are strong Singapore companies with operations across the region that remain attractive,” he says. “I’d like to think there are a lot of options, so it’s not over yet. The M&A business will still remain active in the near future.”
Outbound opportunities
The other notable regional deal of the past year was DBS, Singapore's largest bank, agreeing to acquire a 67.4 per cent interest in Indonesia's Bank Danamon in a deal worth $4.97 billion, alongside an announced mandatory tender offer to acquire the remaining 32.6 per cent stake for $2.4 billion. Reuters said that the deal, if successful, would be Indonesia's largest foreign takeover, and could spark more Indonesia bank takeovers. WongPartnership’s Ng says that while not every Singapore company will look overseas for assets, there are some that will have no choice but to expand outwards. “Singapore is a mature market, so there aren’t that many growth opportunities here,” he says. “The opportunities abound around the region. DBS-Danamon is just one example. There will be more local companies looking at Southeast Asia, to grow their business.” He cites Myanmar as a country on which clients remain very focused. “This is one country that was very hot last year,” says Ng. “It requires a lot more investment in infrastructure, and it has a population that aspires to the same economic standards as the rest of the ASEAN. This kind of country offers great business opportunities.”
The REIT stuff
Rocketing rentals, low interest rates, and a strong real estate market means these are boom times for Singapore’s REITs, writes Ranajit Dam
Amid an uncertain micro-economic outlook, few investment options in Asia have been as reliable as Singapore REITs. With the highest yield spreads among REITs in major markets, S-REITs have been both safe havens and providers of enviable returns, and 2012 was a particularly impressive year. In that period, the Singapore market rose nearly 40 percent, double the returns in major REIT markets like the U.S. and Japan. Industrial REITs, for example, pay dividends of up to 8 percent – more than the 5 to 6 percent offered by blue-chip stocks.
According to Chia Kim Huat, head of the Corporate & Capital Markets Practice at Rajah & Tann, this has occurred due to couple of factors: The underlying assets are providing high yields and costs are down. “In Singapore, industrial, retail and commercial rentals are still increasing,” he says. “At the same time, one of the main costs for REITs is financing costs, but as interest rate now is extremely low, you end up with relatively high-yield REITs.”
The combination of these factors means that there is growing investors' interests in REITs and this has led to a large number of companies getting into REITs to refinance their assets. “Obviously the low-interest environment is not going to last,” Chia says. “Companies that have large portfolios of assets are relying on the low-interest bank loans for funding but somewhere down the road, interest rate would go up. So now people are taking advantage of this scenario to recycle their capital and diversify their funding source by using REIT instruments.” Additionally, REITs are providing good capital gains in the current climate, which makes them doubly exciting for investors, he adds.
Petrus Huang, head of the REITs and Funds Group at the Corporate & Finance Department at Drew & Napier, says that apart from being relatively transparent and well-regulated, S-REITs also have the advantage of solid credit levels in the recent past, and banks are comfortable with financing their property acquisitions and holdings. “In the aftermath of the Lehman crisis, there was funding illiquidity, and REITs were getting into refinancing difficulties,” he says. “When there are refinancing problems, the value of the REIT units could plunge significantly.”
Tan Woon Hum, partner at Shook Lin & Bok, which has been involved in 24 of the 25 listed REITs in Singapore since the REIT industry started more than 10 years ago, says that his firm has witnessed continued interest in cross border REITs, hospitality REITs and the acquisition by REITs of good assets in all property sectors. “The Far East Hospitality Trust and Ascendas Hospitality Trust (the two successful REIT listings of 2012) are strong testament,” he says. “Given the consistently strong economic growth in Asia and the undeniable potential Asia brings, it would appear that the interest in reaping from the tourist dollar remain strong. There is, thus, no surprise that Pan-Asian hospitality REITs have been the flavour of the month. It also helps that there are strong sponsor names and strong renowned hotel operators that have seen different cycles, and are able to put together a viable and sustainable trust structure.”
In 2013, says Tan, there will be possible listing of new REITs, apart from hospitality REITs staying popular. Additionally, he expects renewed interest in India REITs and China REITs. “We expect to see continued selective acquisition of good class assets both in Singapore and in Asia by existing REITs,” he says. “There are limited stock of good class assets in Singapore, if they are available for sale. Thus, we expect REITs will look outside Singapore aggressively. REITs may even look beyond Asia, like Ascott Residence Trust, the serviced apartment REIT that ventured into Europe in 2010.”
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