CapitaLand share price faces destiny with Temasek Holdings

Since my last article, “CapitaLand share price ready to rocket”, this counter took on a life of its own. For the longest time, CapitaLand was a forgotten stock in SGX but trading volume hit the roof on 15 January 2019 following announcement of the $11 billion acquisition of Ascendas Singbridge from Temasek Holdings. Is this the dawn of a new era for CapitaLand share price?

Post transaction, CapitaLand will become the largest diversified real estate group in Asia, with combined assets under management (AUM) exceeding $116 billion. Given the mind-boggling deal size, one would wonder the impact to CapitaLand share price in the short-term and the implications to the REITs under both entities.

CapitaLand share price

Many analysts and financial bloggers have pointed out that the major impetus for this mega deal is all about scaling to achieve bigger things for CapitaLand. Of course, scaling is important for a real estate company. In recent years, CapitaLand share price had become stagnant and was consistently traded at prices below Net Asset Value (NAV). So it makes sense for a mega merger and acquisition deal to “stimulate” CapitaLand share price and drives returns for shareholders. As Temasek Holdings is the parent company of both entities, it is obvious that the state-linked firm orchestrated this merger.

In this article, I will share my view on why I am not so gung-ho with this acquisition and the key factors that may affect CapitaLand share price in the coming months.

Sluggish CapitaLand share price

In my point of view, the above is not the real motivation for the stunning acquisition. It is likely that Temasek Holdings is setting the stage for the newly minted CEO, Lee Chee Koon, who took over the helm only in September 2018. As CapitaLand is one of the top three marquee assets of Temasek Holdings, it is important that the CEO’s tenure begins with a good footing. Indeed, CEO Lee would have his work cut out as CapitaLand share price had been languishing between $2.00 to $3.00 bandwidth in recent years, a shadow of its former self. So Temasek Holdings would want to make his tenure a successful one, probably through a proven strategy.

If investors look back, CapitaLand was formed in 2000 through a merger of similar scale, between DBS Land and Pidemco Land. It was a tumultuous period as the country just emerged from the devastating Asian Financial Crisis. That defining corporate move led to a real estate behemoth with overseas presence in 33 cities in 17 countries and total assets of over $18 billion. Besides that, the merger also created the legendary CEO, Liew Mun Leong, who subsequently led the group for 17 long years. Liew Mun Leong’s tenure at CapitaLand was considered to be wildly successful, with CapitaLand share price hitting a record high of $8.60.

Widely credited for pioneering the “asset recycling” strategy through REITs, Liew Mun Leong did not [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: January 29, 2019 — 1:49 am

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