Investors lapped up news that entertainment operator St James Holdings will exit its current business and transform itself into a real estate player in a reverse takeover.
Shares of the Catalist-listed firm shot up one cent or 18.5 per cent to 6.4 cents on Monday, its first session of trading since it called for a trading halt last Friday at around 2pm, pending the announcement of the reverse takeover.
It proposes to acquire $1.56 billion of assets from listed property player Perennial Real Estate Holdings by issuing new shares.
St James will then place its existing hospitality and entertainment business into a new company that will in turn issue shares to existing shareholders of St James.
This will be followed by an offer to acquire all units of mainboard-listed Perennial China Retail Trust (PCRT) that it does not already own at a price of 70 cents per unit via a share swap.
St James will then be renamed Perennial Real Estate Holdings Limited (PREHL).
Brokerage DMG noted that the positive market reaction is to be expected as the deal will bring a new lease of life for both St James and PCRT.
PCRT's shares, meanwhile, rose modestly by half a cent or 0.9 per cent to 55 cents, as brokerage CIMB issued a sell call in the wake of the proposed deal.
CIMB analysts Tan Xuan and Donald Chua said in a research note that they view the deal negatively for PCRT given the offer to pay for the units through PREHL's shares.
They pointed out that at the issue price of $1.1756 per PREHL share, it translates to 0.9 times the price-tonet tangible asset and 24 times the price to earnings ratio, which is "pricey" in their view.
They added that existing PCRT shareholders converting their shares into PREHL would compromise on yield. PCRT shareholders would also have to accept higher development risks and wait a longer time for the combined company to complete its projects.
There are also concerns over the gearing of the new company, the CIMB analysts said. "With close to 77 per cent of the assets under development, we believe future capital requirements can be quite substantial."
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