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KEPPEL Land is raising $712 million through a rights issue amid concerns over its current debt ratios.
This has caught some by surprise despite the murmurs about a potential cash call early this year, as expectations of a rights issue had recently eased.
The property arm of Keppel Corporation said yesterday that it would offer a 9-for-10 rights issue at $1.09 apiece, representing a 42 per cent discount to the last closing price of $1.88 before the rights announcement.
It is also a 53.7 per cent discount to the company's post-rights issue net tangible assets (NTA) of $2.35 per share.
Keppel Corp - which owns 52.64 per cent of Keppel Land - will fork out about $373 million to fully subscribe its allocation.
Under an agreement with sole underwriter Merrill Lynch, it will also absorb up to 90 per cent of the rights that are unsubscribed, bringing its commitment up to as much as $678 million.
The rights issue will lower the company's NTA by 32.9 per cent from $3.50 to $2.35, and slash its net debt-to-equity ratio to 0.22 times from 0.52 times. Its net gearing would beat CapitaLand's of about 0.32 times post-rights issue.
This would also more than double the cash in Keppel Land's coffers, which held $627 million as at end-March 2009.
Speculation was rife early this year that Keppel Land would take this funding route after competitor CapitaLand and its subsidiary CapitaMall Trust chose to raise some $3 billion in total in February.
Some analyst reports had noted then that Temasek-linked companies (TLCs) such as Keppel Land could be making cash calls, after TLCs including Chartered Semiconductor Manufacturing and DBS announced their rights issues.
'While Keppel Land's management recently denied a planned rights issue, the risk of a cash call still exists,' said UOB Kay Hian analysts in a March report.
But the recent surge in shares of Keppel Land, as part of the rally among property counters, suggested to market watchers that the rumours had been doused.
Shares of Keppel Land have risen 35.3 per cent in the last month, outperforming the index by 21 percentage points.
BT understands that there have been early talks held between Merrill Lynch and Keppel Land since the start of the year, though details were only finalised in recent weeks.
A Keppel spokeswoman acknowledged that the company said that there was no need for a rights issue in January during its results briefing.
'Since Keppel Land's results announcements on Jan 21, 2009, the economic situation has seen more volatility,' she said.
'In the current market, there are more attractive opportunities and strengthening our financial position would allow us to capitalise on them.'
One analyst from a local bank noted that the funds would be used as a buffer against writedowns on the company's office portfolio, which are likely to filter in from the next quarter and intensify towards the end of the year.
The bulk of the funds could be used as development capex for Ocean Financial Centre and phase two of the Marina Bay Financial Centre, said CIMB-GK analyst Donald Chua, who said in an earlier report that funding for these projects would 'hinge on new home sales' amid the tepid property market now.
'Nowadays, gearing is probably a dirty word,' Mr Chua told BT, noting that Keppel Land also had the option of tapping on loans for the office projects since these are un-geared. But he added: 'I'm sure Keppel Land is able to borrow at pretty decent and manageable rates so in that aspect, the shareholder value in terms of NAV (net asset value) and earnings per share is very much diluted.'
Landbank expansion in China and Singapore could be on the cards for Keppel Land, said analyst Brandon Lee from DMG & Partners Securities, who has a 'neutral' call on the stock.
But Mr Chua, who has an 'underperform' rating on the stock, said that any acquisition would come later as asset prices are not as depressed yet.
Keppel Land announced a 38.8 per cent drop in first-quarter net profit to $36.9 million three days ago.
Its shares plunged as much as 8 per cent following the news of its rights issue yesterday before ending at $1.76, down 12 cents. Keppel Corp fell 2.2 per cent yesterday, finishing at $5.89.
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