Frasers China privatization deal pushes through

There are two reasons why Fraser & Neave and another shareholder are buying out the subsidiary shares.

The low valuation and daily trading value of Frasers Property China has made its privatization an attractive option for the two largest shareholders, FCL Pte Ltd and Riverbook Group Limited, which combined own a 73.33% stake in the HK-listed entity, said DBS Vickers.

Here's more from DBSV:

Taking Frasers Property China private. F&N announced that one of its 100%-owned subsidiary, FCL (China) Pte Ltd, is proposing to privatize its 56.17% owned HK-listed entity, Frasers Property (China) Limited (FPC) [535 HK]. The proposed privatization will be undertaken jointly with Riverbook Group Limited (RGL), a wholly-owned subsidiary of Ascendas Land International Pte Ltd. RGL is also the second largest shareholder of FPC with a 17.16% stake. The main assets of FPC include the 157,610 sq m Vision Shenzhen Business Park and Shanshui Four Seasons in Shanghai with 737,000 sq m earmarked for residential/ commercial uses.

Low valuation, trading value key reasons. We believe the rationale for this exercise is that the current traded price does not reflect its value as FPC is trading at c.43% discount to its NAV. Furthermore, FPC’s trading value is relatively low at <HK$1m/ day. The privatization is likely to provide more flexibility for the major shareholders to extract value, in our view.

F&N is still trading at a 24% discount to our RNAV, Maintain Buy. We continue to see value in F&N (please see our latest report dated 22 Mar12), as it is trading at 24% discount to our RNAV (S$9.02), with the potential to progressively unlock value over the longer term – APB, F&N Berhad, Times Publishing, properties, etc. In the meantime, the Group’s earnings will benefit from the strong performance of its brewery unit, stable investment property earnings, coupled with c.S$1.7bn in unrecognized property development sales in Singapore. We believe its low landbank and partnership strategy for land tenders will better insulate it from policy risks in this uncertain market.