Wheelock in a bind over SC Global

Published on Dec 20, 2012

By Goh Eng Yeow Senior Correspondent, News analysis

IT IS just as well that Wheelock Properties has made its unhappiness public over Mr Simon Cheong's plan to take SC Global private.

The Hong Kong-linked company is the second-largest shareholder in the upmarket condo developer with a 16.02 per cent stake, after Mr Cheong who owns 60.45 per cent of the company.

About a fortnight ago, Mr Cheong, SC Global's chairman, launched an offer for all the shares in the company that he does not already own, which valued the company at $745 million.

Singapore Exchange's (SGX) listing rules require stakes belonging to the chief executive, directors, and substantial or controlling shareholders to be excluded from a company's free float of shares. The free float is the proportion of a company's shares available for ordinary investors to trade.

This means SC Global's free float is only about 21 per cent, if the stakes belonging to Wheelock, Mr Cheong and another executive director, Mr David Tsang, are added together.

Wheelock finds itself inadvertently helping Mr Cheong in his quest to take SC Global off the market altogether, since another SGX rule allows a company to be delisted if its free float falls below 10 per cent.

Now that Wheelock finds itself caught between a rock and a hard place, what are its options?

Market talk suggests that it may apply to the SGX to get a waiver so that its stake counts as part of SC Global's free float, since it has always been a passive shareholder with no say on the running of the company.

This, of course, would boost SC Global's free float to 37 per cent, markedly higher than the current level.

But the SGX may be wary of establishing such a precedent, given the other factors it has to take into consideration. One fear is the likelihood of the stock becoming cornered, if too many of its shares are held by only a few major shareholders.

Not that this is an idle concern.

In October 1998, the SGX delisted then recently listed Mid-Continental about three months after suspending the counter upon discovering that 96.5 per cent of its initial-public-offer shares had fallen into the hands of just five investors who then rigged its share price.

As the IPO underwriter, OCBC Bank was forced to buy back all Mid-Continental shares from minority shareholders.

Two years later, another company, Links Island, was suspended from trading over similar concerns, after its share price shot up fourfold within months of its listing. Its founder Winstedt Chong was subsequently convicted of stock manipulation and fined.

Some will argue that Mid-Continental and Links Island were fairly small newly listed companies, which limited the number of shares in circulation. Even then, the stock manipulation succeeded only because of the connivance of the major shareholders.

But Wheelock will still face an uphill battle to convince the SGX that once SC Global's free float falls below 10 per cent, or 41.5 million shares, there will still be sufficient stock in circulation to keep it listed.

One other option which Wheelock has is to hold out the prospect of a bidding war for SC Global by continuing to accumulate shares at prices above Mr Cheong's $1.80 offer.

This is a ploy it used last week when it bought one million shares at $1.81 apiece.

It even put out a statement to proclaim that Mr Cheong's offer undervalued the company.

"In our assessment, the current share price represents a discount of some 40 per cent to 50 per cent of RNAV (revalued net asset value) and we would be unable to buy property assets directly at anything like these prices," said its senior director Tan Bee Kim.

So far, Mr Cheong has not responded to Wheelock's strike. He has not raised his offer, even though SC Global has risen way above his $1.80 offer price.

But if his objective is to raise investors' awareness of SC Global, he has succeeded beyond his wildest imagination. He has also forced Wheelock to say publicly that the stock is undervalued.

Before he launched his takeover, SC Global was languishing with an average daily volume of 255,000 shares this year, unloved and neglected by the analysts who covered the property sector. But in the past two weeks, daily average turnover has shot up to 4.66 million shares, with some analysts sharply raising their valuation for the stock.

On paper, at least, Mr Cheong finds himself richer by almost $200 million as SC Global surges by 64 per cent in value. What a nice Christmas present it must have turned out for him, as the media and analysts shower their attention on SC Global.

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