CapitaLand Limited's (SGX: C31) Proposed Restructuring: What Investors Need to Know

If you have lived in Singapore for an extended period of time, I am sure that you would have visited a CapitaLand Limited (Ltd.) (SGX: C31) property at least once in your life.

CapitaLand is also the largest real estate company that’s part of the Straits Times Index, and one of the biggest real estate companies in Asia.

Not to mention that the company sponsors several real estate investment trusts (REITs) listed in Singapore, including:

• Ascendas Real Estate Investment Trust (SGX: A17U)
• Ascendas India Trust (SGX: CY6U)
• Ascott Residence Trust (SGX: HMN)
• CapitaLand China Trust (SGX: AU8U)
• CapitaLand Commercial Trust (SGX: C61U)
• CapitaLand Integrated Commercial Trust (SGX: C38U)
• CapitaLand Mall Trust (SGX: C38U).

However, the company did not do too well in FY2020, it posted a net loss of around S$1.57 billion; the first time it had posted a loss in about two decades.

TL;DR: CapitaLand Restructuring Explained

• CapitaLand is proposing to split its business into two entities: CapitaLand Investment Management (CLIM) for fund management and lodging business segment while its development business segment will be privatised.
• CapitaLand Investment Management (CLIM) will be listed on the Singapore Exchange (SGX)
• CapitaLand shareholders will receive and receive implied consideration of $4.102 per share that is broken up into cash and scrip.

CapitaLand Halts Trading on Monday Morning (22 Mar 2021)

Just this morning (22 Mar 2021), CapitaLand filed to halt the trading of its shares with the Singapore Exchange (SGX: S68) in anticipation of the announcement of its restructuring plans.

Trading for its Singapore REITs: Ascott Residence Trust, Capitaland Integrated Commercial trust, Ascendas, Capitaland China Trust and Ascendas India Trust was also suspended.

This was probably done to stabilise prices for these REITs.

P.S. Check out our free REITs tool that will help you find the best REITs.

For context, CapitaLand’s share price closed on Friday at S$3.31 which means that the company has a market capitalisation of about S$17.4 billion.

CapitaLand’s Proposed Restructuring

So you might be asking, what was the trading halt for?

Well, CapitaLand is proposing to restructure its business and separate it into two distinct companies to maximise growth.

Source: CapitaLand

Under this proposed Scheme, CapitaLand’s investment fund management business, as well as its lodging business, will be opted into CapitaLand Investment Management (CLIM): a company that will be publicly listed on the SGX.

On the other hand, CapitaLand’s real estate development business will be privatised and sold to CLA Real Estate Holdings.

Here’s a visual representation of the proposed restructuring:

To put it simply, CapitaLand shareholders will be selling the development business segment of the company.

What Will CapitaLand Shareholders Get?

If the proposed scheme goes through, eligible CapitaLand shareholders will be compensated as follows:

Each CapitaLand shareholder will be given an implied consideration of S$4.102 per CapitaLand share in cash and scrip which includes a 1-for-1 equivalent stake in the new listed entity:

• 0.155 units of CapitaLand Integrated Commercial Trust (SGX: C38U) worth S$0.328
• S$0.951 in cash
• 1 CLIM share with a book value of S$2.823.*

*Based on CLIM’s pro-forma net asset value (NAV) of S$14.7B as of 31 Dec 2020, adjusted for transaction costs. CLIM is valued at 1x NAV for illustrative purpose to determine Implied Consideration

An important thing to note is that CapitaLand will still pay out its dividend to shareholders.

However, I think that shareholders are given a bit of a raw deal here as although they will be compensated at a 24 – 28 per cent premium based on the last closing price and five and 10-year volume-weighted average price (VWAP); the company’s book value per share (mrq) of S$4.73 tells another story.

This would represent a very generous 43 per cent premium.

But on balance, I would think that this deal is quite decent as CapitaLand has been trading sideways for quite some time.

What is CapitaLand Investment Management (CLIM)?

This begs the question. What will CapitaLand shareholders get with their CLIM shares?

As part of the proposed Scheme, CapitaLand will distribute approximately 48 per cent of shares in CLIM to all its shareholders, excluding CLA (Eligible Shareholders).

As this is a 1-for-1 distribution, the share ownership ratio in CLIM immediately after the issuance of the CLIM shares will be equal to the Eligible Shareholders’ existing ownership in CapitaLand.

The new CLIM entity will have assets under management (AUM) of about S$115 billion which will make it the largest real estate investment manager (REIM) in Asia, and the third-largest listed REIM company in the world

What Are Capitaland Shareholders Required to Do?

As of today, the deal is yet to be approved.

If you hold CapitaLand shares in your CDP account, you have the right to vote on this scheme at the company’s extraordinary general meeting (EGM) and scheme meeting that will be held sometime in the third quarter of 2021.

For those who own CapitaLand shares under a custodian account, you will have to check with your brokerage.

The scheme is subject to regulatory conditions, the approval of the High Court and approval of the scheme by a more than three fourth majority of shareholders (in terms of the value of the shares).

One thing to take note of is that as an interested party, Temasek Holdings and its associated parties will not be allowed to vote at both the EGM and the scheme meeting.

This whole restructuring which will wrap up with the listing of CLIM is expected to end sometime in the fourth quarter of 2021.

More information will be released closer to the date.

Do save this article as we will be updating it when more information is released!

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.