Sime Darby : Asset injection into Saizen REIT back on track HOLD

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Sime Darby : Asset injection into Saizen REIT back on track           HOLD

Sime Darby's injection of assets into Saizen REIT is back on track after the announcement on 4 October 2016 that the proposed framework had lapsed. Sime has proposed to dispose 20 industrial properties in Queensland and Northern Territory to Saizen REIT for AUD355.8mil (RM1.1bil). Sime will subscribe for new units in Saizen REIT at a unit price of S$0.03604. Sime will issue promissory notes, which shall be satisfied in cash, as consideration for the new units in Saizen REIT. Sime will also carry out a placement of the new units in Saizen REIT. Following this, Sime will hold not less than 25% of the enlarged Saizen REIT. Saizen REIT closed at S$0.045/unit yesterday.  Effectively, Sime is selling a 75% stake in the industrial properties. Initially, Sime would not be recording any cash inflow from the disposal of the industrial properties. The cash from the disposal would only come in after the placement of units and promissory notes have been completed.   

Based on the consideration of AUD355.8mil and unit price of S$0.03604. we estimate that Saizen REIT will be issuing new units of 10.3bil. After that, Sime will be placing out 75% of the 10.3bil new units to help maintain the public shareholding spread. Sime will eventually hold not less than 25% of Saizen REIT. We believe that Sime would be receiving cash of AUD266.9mil (RM839.7mil) after the placement of the 75% of the new units in Saizen REIT. The issue price of S$0.03604 is 20% below Saizen REIT's closing price of S$0.045. We understand that Sime would be recording a gain on the disposal of the industrial properties although the amount was not disclosed in the Bursa Announcement. We believe that this corporate exercise is positive for Sime Darby. If the group manages to place out the new units in Saizen REIT at S$0.03604/unit, it would be able to receive cash of more than RM800mil. Maintain HOLD on Sime with a fair value of RM7.55/share

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