Why are developers delisting their firms?

Heftier and heftier percentage premiums being offered to go private

Published on Dec 13, 2012

By Goh Eng Yeow, Senior correspondent

IN AUGUST 2010, MCL Land was taken private with an offer price which was 26 per cent higher than the closing price before the takeover bid was announced.

Then, in the middle of last year, a company linked to Malaysian sugar king Robert Kuok bought out the minority shareholders of his Singapore-listed property vehicle Allgreen Properties at a 39 per cent premium to its then traded price.

Now, Mr Simon Cheong, the chairman of upmarket property developer SC Global, is offering $1.80 apiece to take the rest of his company private. It works out to a whopping 49.4 per cent premium to the pre-takeover offer price.

Of course, the usual old chestnut is trotted each time a privatisation offer is being made: save on listing costs, give small investors an attractive exit because the stock is thinly traded, and relieve the company of the onerous disclosure requirements imposed by the Singapore Exchange (SGX).

But such arguments are wearing thin as a big question gnaws at investors: Is there something more than meets the eye to explain why property developers are willing to offer heftier and heftier premiums in percentage terms to take their companies private?

In the case of MCL Land and Allgreen Properties, investors had reacted with glee to both companies' privatisation and voted resoundingly to accept their respective offers. With SC Global, however, some investors seem to have adopted a wait-and-see attitude.

Even analysts who have been bearish on SC Global's prospects have advised caution. Before the takeover offer was launched last week, six analysts have an average 12-month target of about $1.20 for the counter - a full 60 cents lower than the $1.80 offer made by Mr Cheong.

Since then, some of them have begun to sing a different tune, noting that the offer price is well below SC Global's revalued net asset value of between $2.87 and $4.

Some stock pundits would argue that it may pay off for investors to be patient. There may be hidden value in many property counters waiting to be unlocked. Just look at beverage giant Fraser & Neave, they say.

Early this year, no analyst worth his salt would have stuck his neck out to say that F&N stock was worth $8. But the dynamics changed dramatically with Thai billionaire Charoen Sirivadhanabhakdi's purchase of a sizeable stake in the beverage giant in July.

This set off a chain reaction which included a successful bid by Heineken to swallow up Asia Pacific Breweries, the famed Tiger Beer maker jointly owned by the two companies, an offer by Mr Charoen to buy up the rest of F&N at $8.88 apiece, followed by a counter-offer at $9.08 apiece by an Overseas Union Enterprise (OUE)-led consortium.

All this prompted Nomura strategist Lim Jit Soon to suggest in a note that the F&N takeover offer may have to be raised to $9.88 in order to succeed.

But some will argue that while F&N is attracting a premium because of a possible bidding war between Mr Charoen and OUE, the privatisation effort for SC Global is unlikely to generate a similar buzz as Mr Cheong already owns 60.14 per cent of the company.

For minority shareholders holding out for a better offer, there is the daunting prospect of retaining shares in a private company if the free float falls below 10 per cent and, under SGX rules, causes the company to be delisted.

Currently, Mr Cheong is less than 12 per cent short of delisting the company. This is because the 16 per cent stake held by Wheelock Properties and 2 per cent owned by SC Global's executive director David Tsang are not considered part of the free float.

What should minority shareholders do?

If they take a view that the sluggish upmarket condo market may enjoy a dramatic turnaround next year and enable SC Global to get rid of its excess inventory of posh condos in projects such as The Marq on Paterson Hill and Hilltops in Cairnhill Circle, they may want to hang on to the shares.

But they may find themselves like the minority shareholders of now delisted retailer C.K. Tang who have spurned four attempts by major shareholders Tang Wee Sung and Tang Wee Kit to buy them out.

Nine years after the first attempt, they are still holding out for a better offer. It is turning out to be an extremely long wait.

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