CapitaLand’s Restructure – what does it mean for shareholders?

You should have heard the news by now that CapitaLand is going to spin-off its investment arm while privatising the development arm.

Update: CapitaLand has announced its Extraordinary General Meeting (EGM) and the Scheme Meeting to be held by way of electronic means on Tuesday, August 10, 2021.

If you’re a shareholder, I just wanted to give you more details and share some of my views about this corporate action.

A brief background on CapitaLand

Singaporeans should be very familiar with CapitaLand as it is the largest property company in Singapore. Everywhere we go we would see its presence – be it CapitaLand Malls, Office or Ascott Residences.

We should also be proud that a tiny Singapore is able to produce one of the largest real estate investment managers in the world – CapitaLand is Asia’s largest and 12th in the world.

So any news like a spin off is a national event (and all the CapitaLand related REITs were halted for trading). Of course, the shareholders of CapitaLand would care more about it than the non-shareholders.

Maybe some of you do not know, CapitaLand was a merger between DBS Land and Pidemco Land. But there was a new law to prevent local banks from having non-core businesses and hence the property development and investment business had to go. Imagine DBS still owns DBS Land, it would even be a bigger monster today.

I did an Instagram post on the story of CapitaLand:

View this post on Instagram

A post shared by Dr Wealth (@drwealtheducates)

What is this about?

CapitaLand is going to split its business segments into two separate companies.

The investment management arm (which includes fund management and lodging) would be formed under a new listed company called CapitaLand Investment Management Limited (CLIM).

The development arm (developing new buildings) is to be privatised. Essentially you are selling part of CapitaLand.

You can see the organisational chart below where part of CapitaLand would be sold to CLA Real Estate Holdings.

The acquirer will pay other CapitaLand shareholders for the shares it does not already own.

My view is that this is a much needed news to boost to the local stock market scene.

Take a look at the stock chart of CapitaLand:

People could have mistaken it as a bond. The share price has been hovering around $3+ most of the years.

Spinning off is one of the ways to escape a conglomerate discount – it just means that the individual parts are perceived to be worth more than the whole.

Hence this spin off is a good news to CapitaLand shareholders. Finally, your patience has paid off!

What’s the deal?

Basically you are going to get $4.102 for each CapitaLand share you own. But it is not all cash.

For every 1 share of CapitaLand you have, you would get

• 1 CapitaLand Investment Management (CLIM) share worth a book value of $2.823
• $0.951 in cash
• 0.155 CapitaLand Integrated Commercial Trust (CICT) units worth $0.328

Given that CapitaLand share price closed at $3.31 before the announcement, it represented a 24% upside at $4.102.

This is at the top range of CapitaLand’s trading history. But I thought they could be a bit more generous to pay at the book value which is at $4.2872. This would have pushed the upside to 30%.

But well, individual shareholders are price takers – you can only decide to accept or reject this price.

What do you have to do?

I believe most shareholders would accept this deal since it is a decent one and a rare chance to get some money back without selling the shares.

The deal isn’t confirmed until it is approved at the EGM and the Scheme Meeting (carried out in the same session) that has been announced to be on 10 Aug 2021.

So your job is to attend the EGM and vote for if you want it to go through or against if you don’t think you are getting a good deal.

There will be three resolutions to be passed:

• Distribute CLIM shares
• Distribute CICT units
• Transfer CapitaLand shares to CLA

The meeting is expected to be held in the third quarter of 2021 and the listing of CLIM in the 4th quarter. So it is still some time away. You will receive the documents, updates and instructions as the date draws near.

This is a pivotal moment for Capitaland as the Group is split into investment management vis-a-vis development functions. Shareholders could get the asset-light investment management business.

Are you a shareholder or looking to get into the action? Join the discussion in our Facebook group here.