If you’ve been reading the financial news lately, there is a good chance you would have come across mention of Keppel Telecommunications & Transportation’s plan to float its data center division as Keppel DC REIT.
This new company is going to book a tidy profit of close to $160 million but a few vocal Keppel T&T shareholders were annoyed with management decisions and voiced their annoyance at the EGM.
‘You are not considerate to shareholders,’ a lady shareholder exclaimed via the microphone. ‘You are taking away Keppel DC REIT from us yet you are not giving any kind of discount or allotment to us.’
She continued, ‘You know when we apply for IPO shares (of Keppel DC REIT), it doesn’t mean we will get the allotment. You are missing out this part!’
After her impassioned speech, a round of applause went off. But that speech didn’t deter the proposed resolution of listing Keppel DC REIT with 99.99% of shares voting for the resolution.
Regardless, the attention is now on the listing of Keppel DC REIT. Together with a couple of really good questions raised by other shareholders, here are six quick things I learned from this EGM:
Chairman Loh Chin Hua claims that Keppel T&T is one of the first movers in the data centre business outside of the US and has been getting good traction in the industry. The tremendous double-digit growth of data storage, cloud computing, and e-commerce explain why more and more data storage facilities are required. Taking into account on the complexity and cost to build a data storage centre, most companies are inclined to outsource their data storage to third-party data centre providers like Keppel DC REIT.
Keppel T&T plans to inject four data centres, two in Singapore, one in Sydney and the last one in Ireland, into Keppel DC REIT. Upon listing, Keppel T&T is committed to maintaining at least a 30.1% stake and be the primary sponsor and manager of the REIT. As its sponsor, the Keppel DC REIT is entitled to first right of refusal for incorporating new data centres from Keppel T&T in the future.
As a sponsor, Keppel T&T’s role is to develop new data centres, stabilise the yield and inject them into Keppel DC REIT to attract risk-averse and yield-seeking investors. When Keppel REIT, another Keppel Corp subsidiary, was listed in 2006, its assets under management (AUM) was $677 million. Today, the REIT’s AUM has grown to $7.2 billion! Management has very much the same intention for Keppel DC REIT moving forward.
While Keppel DC REIT might be attractive to income investors, those who demand more growth and capital gain might see Keppel T&T as a better investment since the parent company usually gets the biggest bite of the cherry (through capital gains). For instance, according to their circular, new NTA per share is $1.13 — a 32.9% gain from $0.85.Thomas Pang, Chief Executive Director, commented during the EGM: ‘We will be able to reduce gearing from 77% to 22% and provide additional room to take on loans to grow the business.’On top of that, Keppel T&T will receive recurring income from its subsidiaries and receive an additional 5% of earnings before interest, tax, depreciation and amortization (EBITDA) as a fee paid to them for asset and facilities management.
Keppel T&T’s 19.98% stake in M1 Limited, a listed telco entity in Singapore, is worth around $673 million as at 25 Nov 2014. However, bound by accounting conventions, Keppel T&T states their investment in M1 Limited at cost value of only $126 million. Assuming a minimum listing price, Keppel’s T&T’s stake in Keppel DC REIT’s is valued at an estimated $330 million. The value of these two assets alone is worth a billion dollars. That puts them on par with Keppel T&T’s market capitalization (as at 25 Nov 2014). Put another way, it’s like having Keppel T&T’s logistic business which generates $17 million in profit a year thrown in for free. However, before you make a rush decision, you must bear in mind that the value of M1 and Keppel DC REIT (upon a successful listing), is always exposed to market volatility.
Any special dividend for Keppel T&T shareholders this year? The management has yet to decide what the “surprise” payout will be — provided the listing is successful.
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