Last year was a bumper year for mergers and acquisitions in and out of Singapore. But 2002 is already shaping up to be very different. Stephen Mulrenan finds out why.

Together with DBS’s acquisition of Dao Heng Bank, SingTel’s US$10bn purchase of Optus was the mega M&A deal of 2001 for Singapore.

Although questions were raised over the amount that was finally shelled out for the Australian telecommunications company, SingTel went on to enjoy a highly prosperous year, acquiring additional assets left, right and centre.

Conscious of the limited growth opportunities in Singapore, the telco company took to the road, dipping its fingers in numerous pies. In addition to the Optus deal, SingTel’s investments in local operators in both Thailand and India also bore dividends. In Thailand, AIS (20% owned by SingTel) acquired Shin Digital for S$392m, while in India, together with Warburg Pincus, SingTel pumped S$460m into Bharti Televentures, now owning 27% of India’s cellular operator. With cellular growth expected to replicate the super-growth seen in China, SingTel is expecting to see high returns.

And having just completed a US$2.29bn global bond issue, SingTel is sitting pretty on a healthy capital-cushion prompting observers to feel confident that the company is targeting further investments in the region. Singapore’s leading M&A lawyers certainly hope that to be the case, as they prepare for a downturn in activity.

Consolidation
A good deal of the Singapore M&A activity in 2001 was centered on consolidation in the banking industry. In some cases, banks in the Lion City, and Asia in general, are not as profitable as they used to be and have been forced to consider mergers as a solution. The mergers of Overseas Union Bank (OUB) and United Overseas Bank (UOB), and Keppel Capital Holdings and Oversea Chinese Banking Corporation (OCBC), are examples of this.

As the Singapore banking market has developed and become more competitive, increasing one’s slice of the market pie has become a harder proposition. Expansion through acquisitions and mergers offers the preferred route to achieving this. Similarly, if turning one’s attention beyond one’s shores, it is a lot easier to simply purchase a bank than to build something up from scratch. The DBS purchase of Dao Heng Bank in Hong Kong is an example of this.

Leading M&A firm Allen & Gledhill enjoyed an outstanding 2001, securing lead roles on the two major transactions in Singapore. Given the amounts involved, acting for SingTel on its acquisition of Optus and DBS on its acquisition of Dao Heng helped propel the Singapore firm to the summit of Thomson Financial’s recent Asian transactions table (see table).

Lucien Wong, managing partner of Allen & Gledhill, was delighted with the Thomson result and thrilled that M&A expertise and service from Singapore had been recognised alongside a list of distinguished firms from the UK, US and Australia. His firm houses four partners who work in the area of public M&As.

On the SingTel / DBS work, Wong says: “As I have always maintained, growth in the Singapore market is limited so Singapore companies have to look outside Singapore.”

It is a sentiment shared by Lee Suet Fern. As well as advising SingTel on its global bond issue in 2001, her firm Shearman & Sterling Stamford acted for Natsteel on its acquisition by Solecton. Although superceded since by the aforementioned bank deals, the US$2.4bn Natsteel acquisition was the largest corporate deal to date that Singapore had seen.

Lee says: “Singapore corporates are in a relatively strong financial position and I think they will continue to expand into the region. So, hopefully, the Optus deal will not be the last. There is some room for consolidation – there will be some restructuring with the banks and I’m hopeful for one more bank deal. But we might well see consolidation in the shipyard, insurance and the finance sectors also.”

Despite such bullish talk, Lee says Shearman & Sterling Stamford is actually downsizing its M&A capability this year, although more as a result of bad luck than judgement. M&A practitioner Oren Azar, who was nabbed from the Singapore office of fellow US firm Milbank Tweed Hadley & McCloy in February 2000, will return to New York mid-2002 due to a family illness. But Azar will continue to wear the Shearman & Sterling colours. “Absolutely,” says Lee. “We’re not going to lose a good man like him.”

Lee adds: “And I’m not sure we’re looking for any immediate replacement. The M&A segment of the market has been very quiet. While I continue to see Singapore as a driver for M&As in the region, next to Japan, I am not sure there will be that many transactions next year.”

Even if the market was flooded with transactions, Singapore does not house a plethora of legal talent with experience at the top end. In addition to Lucien Wong at Linklaters Allen & Gledhill and Lee Suet Fern at Shearman & Sterling Stamford, other names frequently mentioned include Crawford Brickley at Clifford Chance and Elaine Williams at Freshfields Drew & Napier.

Making up the preeminent list would be: WongPartnership (Rachel Eng Yaag Ngee, Gan Wai Seng and Linda Teoh), which acted for UOB in its takeover of OUB which in turn helped it secure 12th spot on Thomson’s survey; Lee & Lee (Goh Kian Hwee), which advised OUB on that deal; and, Rajah & Tann, which gets involved in a good deal of restructurings, particularly in the technology sector.

“It’s a small club of individuals and firms that keep showing up on the same deals,” says CC’s Brickley. “That’s great if you’re in that list, but if you’re not…”.

Brickley himself cemented his position on that list when he moved across from US firm Pillsbury Winthrop on May 1 2001. Although working in the M&A area, Brickley admits that since his move, his work has been “almost exclusively capital markets based”.

The nearest he got to an M&A deal recently was the capital market aspects of the Keppel merger with OCBC. “It’s been more luck than anything,” he says. “The M&A deals that have come into the office have been mostly UK law transactions rather than US law ones.”

This, says US-born Brickley, is more the domain of managing partner Philip Rapp. In 2001, Brickley did head up some New York law proposed deals, but these failed to complete. “Some deals happen, some don’t,” he says. “This is part and parcel of the practice. Given time, I fully expect at Clifford Chance to do my fair share of deals. It’s a now just a more challenging environment in which to get deals done.”

Takeover Code
Making the environment slightly less challenging has been the recent amendments to the Singapore Takeover Code (see: MAS issues revised Takeover Code). Introduced on January 1 2002, the amendments, among other things, have increased the number of shares investors can hold in a local company before being forced into making a mandatory takeover bid.

M&A practitioners have generally welcomed the changes, believing them to be long overdue. Says Lucien Wong: “It is now generally in line with the rules in both London and Hong Kong and should prove to be adequate for present purposes.”

Lee Suet Fern agrees. “They did manage to cover virtually all that we had looked for. Having said that, it’s a moving target for them. We need to stay consistent with key financial centres and the change in the Code helped us achieve that – the commonality of approach that is business-friendly. If you ask me in six months time I’ll probably have a new wish-list, but right now, I think they did an excellent job.”

Practitioners are also in agreement over the impact of the amendments on the level of M&A activity in Singapore. Wong says: “M&A activities in Singapore depend very much on market conditions and not on the revised Takeover Code.”

Lee adds: “The updates do give a lot more flexibility whilst preserving some consistency and equal treatment to shareholders. While we may not see the mega deals of last year, we will continue to see some transactions in Singapore and into the region and the clarity with the Code now will be helpful towards that.”

Describing the banking and telco deals of 2001 as “extraordinary”, Brickley also believes them “unlikely to be replicated”.

With fewer local transactions likely in 2002, the few individuals and firms with sufficient capability in this area will have to compete harder for the scraps of work that are left. Brickley says: “It will be more challenging, but all of these firms do not exclusively do Singapore deals but regional as well. If you look at the broader region, we will remain relatively busy. Singapore companies will continue to rationalise to become more competitive and will make further selective acquisitions,” he says.

Lee adds: “Singapore corporates do have plans to become stronger players and that will mean that they will continue to look offshore in the region and perhaps even globally.”

Companies expected to lead the way include Singapore Airlines and PSA Corporation (which CC is advising on its acquisition of a port facility in Belgium), as well as SingTel and DBS.

For the latter two, Lee says: “They will continue to look at the right strategic investment while focusing on consolidation of the ones that they already executed last year.”

The M&A market in Singapore continues to show signs of life while Singapore’s companies, particularly government-linked, pursue offshore opportunities. Law firms’ prosperity in this sector hinges on a continuation of the status quo. Says Brickley: “We’re hopeful that these companies will drive M&A activity in 2002.”

Lee is also optimistic. “The region still has some way to go in terms of economic recovery,” she says, “and we are intrinsically linked to South East Asia. But from a legal systems perspective, Singapore is very dynamic. We represent a centre that has a high degree of transparency and clarity and this should encourage these types of activities from taking place.”