Jardine Strategic looking to buy back shares

Jardine Strategic, our largest holding in the portfolio yesterday announced its 2009 full-year results. No surprises in terms of profit, as the major subsidiaries have all reported earlier. With about 621 million shares outstanding (after adjusting for crossholdings in Jardine Matheson), total reported shareholder equity of US11,743 million means NAV per share is US$18.91, which means that the stock is currently trading at a discount to book. Reported NAV based on market value of underlying holdings is much higher, at US$32.64, almost twice the last traded price. We continue to view Jardine Strategic Holdings as a cheaper alternative to get exposure to a great pool of businesses, rather than to purchase the individual companies. 

What is interesting from the latest announcement is that Jardine Strategic is looking to buy back shares to reduce capital. The company is looking to spend up to US$250 million to repurchase 13.9 million shares in a buyback tender offer, pricing each share between US$18 and US$19. While this seems a paltry amount compared to outstanding shares of 1,107,130,421 (last reported), it must be noted that about 81% of the company's shares are locked up in Jardine Matheson, which will not be tendering any shares. This leaves about 210 million shares left to participate in the offer. Assuming all holders participate and a pro-rata offer results, this will result in a 6.6% decrease in free-float, leaving free-float at about 18%. This could have some negative implications on the weighting of the stock in the STI, and other major market indices which consider free-float as a key criteria. While the offer price appears tempting, it is unlikely that we will be able to sell our entire holding of 500 shares in the indicative US$18-19 range, and given that NAV is about US$18.91 a share, we will choose to keep our entire holding in the company, and benefit from the reduction in the number of outstanding shares.