ARA Asset Management, the Singapore-listed real estate fund manager, has dominated headlines in recent weeks. At the end of October, the firm sealed this year’s biggest single-asset property transaction in Asia-Pacific with the acquisition of Century Link in Shanghai. The agreed value of the asset was 20 billion yuan ($2.9 billion; €2.7 billion).
An even bigger deal followed just weeks later, when ARA announced that a group of investors had proposed to take it private for S$1.78 ($1.28; €1.16) per share. The deal would value ARA at just under S$1.8 billion.
The consortium consists of: JL Investment Group, the private investment arm of ARA chief executive John Lim; Straits Trading Company; Hong Kong-listed Cheung Kong Property in partnership with private equity firm Warburg Pincus; and Chinese investment manager AVIC Trust.
Straits Trading, JLIG and Cheung Kong Property are the existing controlling shareholders of ARA with an aggregate stake of 46.24 percent as of November 8.
The deal will require the approval of at least 75 percent of ARA shareholders, and would also be subject to approvals from governmental and regulatory agencies in China. It is expected that the acquisition will be completed in the first half of 2017.
For these investors, ARA provides significant scale across Asia, with both listed real estate investment trusts and private real estate funds under management. Since the company’s formation in 2002 and listing in 2007, it has built a portfolio across Asia-Pacific of around S$30 billion worth of assets as of September 30.
Yet, at this size, ARA will need considerable capital backing in order to keep growing, which the consortium aims to help it achieve through strategic co-investments in existing and new funds, as well as through opportunistic acquisitions.
Market sources told PERE that the consortium’s private capital is considered more efficient in helping the investment manager continue to grow. By contrast, should ARA remain a listed company at this scale, raising capital successfully will take time and be highly dependent on market conditions. Such public capital raisings also can be more costly and may result in the dilution of shareholders’ interests.
Bringing in Warburg and AVIC mitigates the capital raising risks as ARA will be able to leverage Warburg’s global network of institutional investor relationships, while ARA can tap into AVIC Trust’s distribution capability in China, providing the company with important access to the Chinese capital markets.
Warburg’s involvement in the deal is notable, as the private equity powerhouse has a history of investing in real estate by building up real estate developers or companies, through which the firm gets indirect access to an entire portfolio of assets.
So far, it has invested more than $2.5 billion into 20 companies and projects in Asia-Pacific, including developers, operators, asset managers and joint ventures in all major property types. The firm’s notable investments in the property sector include Guangzhou R&F, e-Shang Redwood Group, Red Star Macalline, D&J China and Mofang Apartments in China, Vincom Retail and Nirvana Wastu Pritama in South-East Asia and a joint venture with Embassy Group in India.
Entity-level investments can come with a host of challenges for the investor, such as holding a non-controlling minority stake – for example, Warburg will hold a 30.72 percent stake in ARA if the privatization goes through – and having to constantly be available to the portfolio companies. But given the potential benefits of taking over a company such challenges are often considered a small price to pay.
Under the Singapore Takeover Code, the consortium members were unable to further discuss the offer or future plans and ARA declined to comment for this article.