Tycoon Ong Beng Seng should sell his Hotel Properties Limited stake

[SINGAPORE] Since news broke in mid-July 2023 of the Corrupt Practices Investigation Bureau’s questioning of Ong Beng Seng regarding his dealings with former transport minister S Iswaran, Ong has tenaciously held on as managing director of Hotel Properties Limited (HPL).

However, Ong, who is HPL’s co-founder and a member of its board of directors since 1980, will relinquish his managing director role soon. He will not seek re-election at HPL’s forthcoming annual general meeting on Apr 29. 

The Malaysian tycoon was scheduled to plead guilty to charges of abetting a public servant in obtaining gifts and obstruction of justice on Apr 2. The hearing was rescheduled to Apr 25 to allow Ong time to obtain further reports from his doctors on his medical condition.

Earlier this year, news surfaced that Ong was receiving treatment for multiple myeloma, a form of white blood cell cancer. Ong will leave HPL’s board to manage his medical issues.

As managing director, Ong is responsible for all aspects of strategic planning and business development activities of HPL.

Given his legal and medical troubles, should 79-year-old Ong have stepped aside from leading HPL sooner?

HPL’s ownership

Despite Ong’s imminent departure from HPL’s board and none of his family members sitting on the company’s board, he can continue wielding much influence at HPL.

Based on the latest annual report, Ong has a direct interest of 20.9 per cent and a deemed interest of 39.5 per cent in HPL’s shares.

The other big shareholder of HPL is linked to Hong Kong tycoon Peter Woo, former chairman of Wheelock and Company and The Wharf (Holdings), who has a deemed interest of 22.3 per cent.

Meanwhile, around 12 per cent of HPL’s issued ordinary shares are held in public hands. 

Like many local-listed property groups, HPL’s share price is undervalued. As at Apr 17, HPL traded at a discount of 13 per cent to its end-2024 net asset value (NAV) per share of S$4.14. 

HPL’s NAV is likely to be highly conservative. It does not capture potential upside from redeveloping the trio of prime Orchard Road area assets – the Forum, voco Orchard Singapore and HPL House.

Also, there is likely to be upside from hotel assets that are carried at cost less accumulated depreciation and any impairment losses.

While Ong’s physical health is ailing, might the dealmaker, who featured in successful contested takeovers of NatSteel and Singapore Press Holdings excluding its media business, try to privatise and delist asset-rich HPL? Likely, private equity groups will be happy to work with Ong on a proposed privatisation of HPL.

Selling controlling stake

However, what may benefit both Ong and HPL’s minority shareholders more is for Ong to sell the shares where he has direct and deemed interest in.

Perhaps Ong can also interest Woo in having the latter’s deemed interest in HPL put up for sale too. Should these two tycoons come together to sell their HPL interests, an incoming buyer will be well-positioned to take control of all of HPL.

The timing looks right for shareholder changes at HPL. 

In late August 2023, HPL announced that it received the grant of provisional permission to redevelop the Forum, voco Orchard Singapore and HPL House from the Urban Redevelopment Authority under the strategic development incentive.

The above properties sit on freehold/999-year leasehold land with a total land area of about 150,987 square feet (sq ft). 

A redevelopment could see the building of a mixed development with total gross floor area of over 1.2 million sq ft, which includes hotel, retail, office and residential components.

When completed, the above development can become the focal point to the north-west of Orchard Road and a gateway destination on Singapore’s prime retail street.

Certainly, redeveloping HPL’s trio of Orchard Road area properties could yield substantial benefits. For one, Singapore’s efforts to draw high-quality visitors will get a major boost from having a mega development that enhances Orchard Road’s attractiveness as a retail and lifestyle destination.

The redevelopment project offers HPL the chance to earn development profits as well as boost recurring income from owning the non-residential components of the new development.

However, executing a large-scale development project entails substantial risks. Construction costs will be hefty and there will be loss of income from the existing buildings as they undergo redevelopment. 

Given the project’s complexity, there are risks of delays in project completion, which will add to costs.

Crucially, an integrated development with multiple components needs to be well-conceptualised such that the individual components have distinct identities while being seamlessly connected. In short, top-notch development and asset management skills are needed if the mega redevelopment of HPL’s Orchard Road area properties is to deliver the top integrated development in Orchard Road and possibly islandwide.

Besides the potential redevelopment project, other key aspects of HPL’s business include its interests in 41 hotels – largely in the luxury segment – across 17 countries as at end-2024. The group recently inked an agreement to buy The Intercontinental Auckland in New Zealand.

Possible suitors

Having a new controlling shareholder who is financially strong and capable across office, retail, residential and hospitality segments can arguably help drive HPL’s growth.

Think of the likes of Hongkong Land working together with Mandarin Oriental Hotel Group or Allgreen Properties working alongside Shangri-La Asia to bring HPL’s business to new heights. 

HPL could be a good fit for Pontiac Land, which is focused on high-end properties and owns properties near the Forum, voco Orchard Singapore and HPL House. Might buying into HPL be a smart way for property and hotel group City Developments Limited to do a reset following the highly public spat between executive chairman Kwek Leng Beng and son Sherman Kwek?

Parties such as CapitaLand Group and Mapletree Investments who have strong capabilities spanning from property development to fund management might also be drawn to buying HPL.  

While he leaves helming HPL’s management soon, Ong holds the key to what is next for the group. For Ong as well as HPL’s minority shareholders, finding a new controlling shareholder appears compelling.

The writer owns shares in HPL