Singaporeans have eye on the tiger

It may have been a sparse few years for deal makers in investment banking, but the new year has got off to a quick start now that the Singaporean government has formally put its controlling stake in Australand on the block.

Almost a month ago, GPT went public with a bid to buy a large slice of Australand after earlier private approaches failed to make any headway.

GPT wanted to buy Australand's property portfolio along with its commercial and industrial assets which, between them, account for about 80 per cent of Australand's assets.

Of no interest was the residential development arm, given the pressure on both the Queensland and Victorian markets and GPT's lack of exposure to this part of the market.

Subsequent speculation that Australand might prefer to deal with Mirvac proved to be wide of the mark, as it bides its time - for now at least.

Australand has formally appointed Macquarie Capital, Fort Street Advisers and King & Wood Mallesons to advise it as it prepares for a change in control. The choice of Fort Street Advisers is of interest, given its role in the recapitalisation of the Goodman Group and the sale of Valad, among other deals in the property sector.

For Australand's Singaporean parent, CapitaLand, the decision to review its investment in Australia forms part of a broad reorganisation. In its new year message, CapitaLand highlighted growth opportunities in China now the economy there has stabilised, and where it has a suite of projects under way.

As well, it has reorganised its structure, which has also served to highlight its growth options in China and Singapore.

So any decision to sell out of Australia should be seen in the context of redeploying capital to higher growth markets, rather than an opinion on Australia's property markets.

It also points to a more sober view of the outlook for the Australian currency. Clearly while the Australian dollar is overvalued, few expect a quick pull back. That will occur in due course, so preparing the way to move on now makes sense.

Equally, CapitaLand is not alone among foreign investors moving to shift investment funds from Australia. In the resources sector, for example, Caltex's main shareholder, Chevron, is moving to free up capital tied up in its ailing local refining operations, as it seeks to tap into higher profit opportunities in the export gas sector.

With a market capitalisation for Australand of $2 billion, this values the Singaporean stake at about $1.3 billion, without incorporating a premium for control. Thursday's closing share price of $3.47 is little changed from its most recently stated net asset backing of $3.46.

Given the small size of the Australian market, and the inability to integrate investments in Australia into other parts of its operations, it makes sense for the Singaporeans to quit Australand if the price is right.

Additionally, Australia is not the only part of the group's assets that may be sold, with the rule also being run over CapitaLand's assets in Britain, Vietnam, India and Japan.

But climbing further aboard the China tiger will bring with it a new set of risks for CapitaLand shareholders, which will be exacerbated by selling down an investment exposure to a number of property markets regionally.

As it recently told analysts, it intends to sharpen its focus to concentrate on its core strengths in the key China and Singapore markets, confident of the transformation under way in the Chinese economy.

Similarly, it has made it clear it is in no rush to sell out of Australia - which comes as no surprise given the paucity of competing bidders for the assets that may limit any bidding tension in any change of control.