OCBC Should Keep Options Open On Straits Trading

Source : The Straits Times, Feb 20, 2008

MOST of the attention so far in the escalating battle for The Straits Trading Company has centred on the two prominent business families slugging it out for one of Singapore’s oldest companies.

But there is another player with a pivotal role in the unfolding drama which has so far stayed largely under the radar: OCBC Bank.

Last week OCBC announced it would not accept either of the competing offers for Straits Trading, in which it has a 6.2 per cent stake, as it sees greater value by staying put and taking an active role in the company’s affairs. That decision demands close scrutiny from OCBC’s shareholders.

Last month, Ms Chew Gek Khim, the grand-daughter of the late Tan Chin Tuan - chairman of OCBC between 1966 and 1983, made what many consider to be an audacious bid to gain control of Straits Trading via investment vehicle Tecity.

In doing so, she pitted herself against the bank’s biggest shareholder and founder, the Lee family, which seems determined to stop her with a competing bid.

The sums involved are not trifling. Buying up the rest of Straits Trading would cost Tecity $1.7 billion, after it raised its offer to $6.70 a share on Monday.

For the Lees, the sum involved is equally daunting. Excluding OCBC’s 6.2 per cent stake, they may have to pay nearly $2 billion - not a petty sum even if they are one of Singapore’s richest families.

Both the Lees and Ms Chew have stayed largely out of the media spotlight so far.

The Tan family, like the Lees, had seemed content to let professionals run a company linked to OCBC as long as anyone can remember. Until now, Ms Chew was best known for the ruckus she kicked up over the manner in which the Indonesian Lippo Group booted out the then chairman of Robinson & Co, Mr Michael Wong Pakshong, nearly two years ago. She later resigned from the board.

Many believe that calamitous event marked a turning point for her - shattering a belief that her family’s interests would always be aligned with that of OCBC, Robinson’s former controlling shareholder.

Indeed, it might have prompted Ms Chew to take a hard look at the inheritance left by her grandfather. This could have led to the battle for Straits Trading.

Ms Chew has little to lose. She either gains control of a listed vehicle with a big land bank, or walks off with $480 million or more, if the Lees call her bluff and make her an offer she cannot refuse.

Her offer also comes at an opportune time for Straits Trading shareholders. While other property firms like City Developments and CapitaLand are trading 30 per cent below their peaks last year, Straits Trading is being valued at a 42 per cent premium over its average price of $4.70 last year.

But OCBC shareholders must be wondering why the bank rejected both offers for its stake. Isn’t it better if the bank keeps its options open until the final wash-up?

At a time when cash is king and global banks are struggling to raise funds to re-capitalise their battered capital base after suffering big losses in the United States, OCBC is in an enviable position - getting fabulous offers for its non-core assets such as Straits Trading and Robinson. Tecity’s latest offer of $6.70 values the tin smelting company above independent financial adviser CIMB-GK’s break-up value of $6.52 per share.

It also begs the question whether there is much more value to be unlocked out of a company, where the share price had hovered between $2 and $3 for much of the past 10 years.

Surely, if the bidding continues at a furious pace, OCBC and its unit Great Eastern Holdings should consider throwing in the towel as well. This will help to further unravel the intimate cross- holdings of shares in companies held by the bank and its biggest shareholder, started four years ago when the Lees sold their Great Eastern stake to OCBC.

With fewer non-core assets to distract, OCBC’s management will have more time - and more resources - to build a banking empire by buying up distressed banking assets overseas when they are going cheap. That would definitely win accolades from investors.