A rewarding move to boost price!
Sharing gains with shareholders a welcome strategic move!
The Straits Trading Company just announced a special dividend via a in specie distribution of shares in ESR Group. Following STRTR’s divestment of ARA Asset Management to ESR Group in January 2022, STRTR received a combination of S$142.5m in cash, and 214.7m in shares of ESR Group at a valuation of close to S$1.08bn.
The special dividend involves c.62.8m shares of ESR Group valued a c.S$0.50 per share. Shareholders of STRTR will receive the distribution in specie at a ratio of 145 ESR Group shares for every 1,000 STRTR shares owned. The distribution in specie makes up c.30% of STRTR’s holdings in ESR Group, and is c.2.7% of STRTR’s NAV. The rationale behind this special dividends are:
- Unlocks value for shareholders and provide flexibility to deal with STRTR and ESR Group shares directly
- Optimise STRTR’s capital structure and maintain a prudent balance sheet
- Potential to increase free float of STRTR as shareholders has the option to either receive the special dividends via shares of ESR Group or new shares in STRTR
- 180 STRTR shares for every 145 ESR Group shares
Unlocking of value for STRTR. We view this strategic move to be positive for STRTR, given that it has become much of an investment holding company after the sale of ARA Asset Management (“ARA”) to ESR Group in exchange for cash and shares in the combined entity. Based on our estimate, STRTR stake in ESR is worth close to HK 4.9bn (c.S$858m) and this stake in ESR is worth c.60% of STRTR’s own market cap, which highlights the deep value that STRTR trade at ex – ESR stake. The dividend in specie unlock value for STRTR shareholders.
Our BUY recommendation and target price of S$3.90 is maintained.