UEL’s Wearnes disposal could set stage for Charoen’s takeover: report

The Thai tycoon has an eye for property.

A riveting battle involving billionaires and some of Singapore’s biggest firms is currently unfolding on the Mainboard. Property developer United Engineers Limited flooded the headlines yesterday with its decision to sell luxury car distributor Wearnes Automotive for $455m, in a move to dispose non-core assets and focus on its property portfolio.

Wearnes Automotive is the primary business of WBL Corporation, a 108-year-old conglomerate of which UEL owns a 67.6% stake.

The divestment move came just as UEL’s principal shareholders OCBC Bank and Great Eastern Holdings revealed that they have entered into exclusive talks for sale of their combined UEL stake to Thai tycoon Charoen Sirivadhanabhakdi.

According to a report by CIMB, the Wearnes sale could eventually pave the way for Charoen’s UEL takeover, as the divestment of a non-core asset makes UEL more attractive to the Thai billionaire.

“We believe this increases UEM’s appeal as a potential takeover target for Charoen as the automotive segment may have limited synergy with his Singapore properties. UEM’s total assets are now largely property, i.e. 64% investment property and ~20% residential developments in Singapore and China. Given its property- dominated portfolio, we now believe a lower discount to RNAV is possible,” noted the report.

Here’s more from CIMB:
We stated previously that the sale of non-core assets will be a re-rating catalyst for UEM and deem this news as positive for several reasons.

Firstly, this will reduce net gearing to ~39% by end-FY14, factoring in the sale of MFS and the upcoming sale of orchardgateway. Secondly, the reduction of non-core assets allows the company to re-focus on its core property portfolio.

That being said, the property portfolio of UEM requires a long-term view, with existing leases limiting immediate asset enhancement potential.