Singapore"s Biggest Deals Hit by Property Curbs: Southeast Asia

Singapore’s latest round of measures
to curb record property prices has become a stumbling block in
the city-state’s two-biggest corporate takeover deals.

Overseas Union Enterprise Ltd. (OUE) this week gave up its two-
month S$13.8 billion ($11.2 billion) tussle against Thai
billionaire Charoen Sirivadhanabhakdi for property and drinks
company Fraser Neave Ltd., citing the measures. Wheelock
Properties Ltd., which tried to thwart a plan by SC Global
Developments Ltd.’s chief executive officer to buy out the
company, dropped the fight less than a week after the new rules,
citing “market developments.”

Singapore’s latest curbs — from higher taxes to tougher
mortgage requirements — have been described by broker Knight
Frank LLP as the “most severe” since the government started
cooling the market more than three years ago. Announced
acquisitions of Singapore property companies and real estate
investment trusts were worth $37.3 billion last year, the top
destination for property deals behind the U.S., according to
data compiled by Bloomberg.

“It’s a game changer,” said Bryan Go, an analyst at
Phillip Securities Research Pte. “The new measures are some of
the key considerations in both of these MA deals. They will now
evaluate differently on discounting deals.”

A group led by OUE, which in November tried to outbid
Charoen for Fraser Neave (FNN), said Jan. 21 it won’t match the
billionaire’s higher offer, bowing out of the battle. OUE wanted
FN’s property assets, which include serviced apartments,
shopping malls and residential projects in Singapore, and are
the biggest contributor to the company’s sales.

Significantly Increase

OUE “would need to significantly increase the offer price
to a level which is no longer as attractive to OUE, in
particular, given the potential impact of the recent measures
taken by the Singapore government in relation to the property
market,” the company said in a statement. T.L. Woo, a
spokeswoman for OUE, couldn’t be reached on her mobile phone.

OUE is controlled by Chairman Stephen Riady, a son of
Mochtar Riady, who controls Indonesia’s Lippo Group with
businesses from real estate to financial services across Asia.
Charoen’s acquisition is the biggest for a Singapore-based
company, according to data compiled by Bloomberg.

CEO Simon Cheong’s S$745 million takeover of SC Global (SCGD) is
the biggest privatization of a real estate company in Southeast
Asia since 2000, according to data compiled by Bloomberg. The
deal faced earlier headwinds from Wheelock Properties, part of
the 156-year-old Wheelock Co. (20) group of real estate companies,
which said SC Global’s stock was undervalued and hired Goldman
Sachs Group Inc. as its adviser.

Most Concerned

Wheelock Properties, which had 16 percent of SC Global,
bought more shares in the market at a higher price than Cheong’s
offer. Five days after the real estate curbs were announced, it
said in a statement it decided to accept Cheong’s offer “in
light of recent market developments.” Tammy Kwong, a
spokeswoman for Wheelock Properties (WP) in Singapore, declined to
comment beyond the statement.

“Potential buyers will be most concerned about overpaying
for assets and the recent measures will have an impact on the
profitability of targets,” said Alvin Lim, head of Singapore
advisory for HSBC Holdings Plc. “Hence, buyers will offer less
and sellers will have to reset value expectations.”

Still, the curbs targeted homes, and may not be enough to
hamper deals in Singapore, said Choe Tse Wei, managing director
of strategic advisory at DBS Group Holdings Ltd. Most of the
city’s developers are diversified with assets including malls
and offices, many expanded overseas and aren’t dependent on one
segment of the property market or country, he said.

Short-Term Sentiment

“The measures will affect short-term sentiment and
valuations in the residential property sector, but the medium-
to-long term economic fundamentals remain strong, as the
government continues to invest in infrastructure,” he said.

Singapore announced the property curbs on Jan. 11, adding a
5 percentage-point to 7 percentage-point increase in stamp
duties for homebuyers to ease record residential prices. It also
imposed an added tax for permanent residents on their first home,
and on Singaporeans starting with their second purchase.

In addition, the government tightened the loan-to-value
limits for buyers seeking a second mortgage, referring to the
amount they are allowed to borrow relative to the value of their
properties. The cash down payment will rise to 25 percent from
10 percent starting from the second loan, it said.

“Overall, the latest round of measures should lead to a
slowdown in sales volume and lower selling prices,” said Goh Han Peng, an analyst at DMG Partners Securities Pte. “We
could well see the trend of privatization continuing in the
current year especially if developers’ share prices are
depressed due to policy overhang.”

Deal Consideration

Singapore isn’t alone in attempting to curb its property
market. Since Hong Kong Chief Executive Leung Chun-ying took
office in July, his government has introduced three major sets
of property measures, including a new tax for home buyers who
are not permanent residents in the city. The city continued to
attract new investors, with China Vanke Co.’s first purchase of
a residential site in Hong Kong this week through its unit.

The Singapore property stock index tracking 39 developers
fell the most in seven months the first trading day after the
curbs were announced. The gauge has since recovered, rising 0.5
percent in the past two weeks.

Mizuho Corporate Bank Ltd. and Barclays Plc predicted the
first annual decline in home prices after the government
measures, which they described as the most “comprehensive”
since it started cooling speculation in 2009.

“That would be a consideration for deals going forward,”
Vikrant Pandey, a Singapore-based analyst at UOB Kay Hian Pte.
“Deals on the residential side would have to take account of
the new measures.”

To contact the reporter on this story:
Pooja Thakur in Singapore at
pthakur@bloomberg.net;
Joyce Koh in Singapore at
jkoh38@bloomberg.net

To contact the editor responsible for this story:
Andreea Papuc at
apapuc1@bloomberg.net;
Philip Lagerkranser at
lagerkranser@bloomberg.net

Singapore"s Biggest Deals Hit by Property Curbs: Southeast Asia