Lippo Group buys tycoon’s stake in OUE

INDONESIA’S Lippo Group, controlled by the Riady family, is buying Malaysian tycoon Ananda Krishnan’s key stake in Singapore-listed Overseas Union Enterprise (OUE) in a deal worth $957 million.

Since 2006, the two parties have jointly controlled OUE, whose prized assets include the Mandarin Orchard hotel.

However, Lippo and Mr Ananda are said to have suffered strained relations in recent times in various business tie-ups between the two around Asia.

The OUE deal is seen as a signal that they may be going their separate ways.

OUE’s other key properties include Overseas Union House, which is being redeveloped as office building 50 Collyer Quay.

Lippo’s controlling stake in OUE will increase to 88.52 per cent after the deal. Lippo will now be easily the largest shareholder of the mainboard-listed firm.

The level of OUE shares held publicly – 11.48 per cent – does not change. Stock exchange rules say the minimum is 10 per cent. OUE said it plans to stay listed.

Lippo and Mr Ananda acquired their stakes in OUE after United Overseas Bank and its affiliates sold their stake to a joint-venture company controlled by the two parties for $10.20 a share.

Since then, OUE has embarked on a $200 million revamp of the Mandarin Gallery. In addition to 50 Collyer Quay, a 38-storey extension to OUB Centre is being built with the combined development called One Raffles Place.

Yesterday, Lippo was keen to stress that it ’strongly believes in the resilience and growth potential of the Singapore real estate and hospitality market’.

It has decided to lift its OUE stake to ‘further strengthen its asset base in Singapore’, given the opening of the integrated resorts and Orchard Road’s rejuvenation.

Lippo said in a statement that OUE will continue to focus on its core hospitality business, and strengthen its position in the premier retail and commercial space.

Market watchers say having a single controlling owner will enable OUE to be more nimble in responding to conditions.

The deal comes amid market talk that the alliance between the two partners has been under stress for some time.

In 2005, Lippo and Mr Ananda had agreed to set up a joint venture to operate a pay-TV business in Indonesia.

The two also partnered on a cellular operation in Indonesia and later on OUE.

But last month, The Straits Times reported that Mr Ananda’s satellite television operator Astro had won an award after arbitration against Lippo Group over the failed pay-TV business, said to be US$230 million (S$322 million).

While Lippo no longer has any role in the cellular operation, the OUE joint venture has apparently been dogged by disputes over how the property firm should be managed, market players said. Sources said staff morale had been affected.

The two parties had been looking to resolve the issue for some time, market talk suggested. Yesterday’s announcement ended some of this underlying uncertainty.

Lippo has a significant presence in Singapore. Other than OUE, it is behind Singapore’s first health-care real estate investment trust, First Reit.

There is also the Lippo-Mapletree Indonesia Retail Trust, which owns shopping malls in Indonesia.

Lippo is also developing several residential properties, including The Trillium and Centennia Suites in the River Valley Road area.

Yesterday, questions were raised about the funding of the deal, given the large price tag and the fact that most or all will be paid in cash. It is believed that it will come from a combination of internal resources and borrowings.

The price of $11 per share was a mutually agreed price, sources close to the deal said. The net asset value of OUE shares is $10.37 based on the Dec 31 financial statements although some market players say the shares could be worth close to $14.

Yesterday, the thinly traded counter jumped $2.94 to close at $11.98 with only 146,000 shares traded.

Mr Stephen Riady, Lippo’s president, will be OUE executive chairman, after the deal closes. He is now also OUE’s executive director.

Source : Straits Times – 10 Mar 2010