Cheap buyout plans in Singapore? Not so quick, say minority shareholders

Pacific Radiance

28/03/2016 24:00

* Small shareholders begin to flex muscles 
    * Wave of privatisations expected in Singapore - analysts 
    * Small firms trading at cheap valuations - Starmine data 
 
    By Paige Lim and Anshuman Daga 
    SINGAPORE, March 28 (Reuters) - Singapore managements are 
increasingly being forced to pay up for taking their companies 
private as minority investors demand bigger premiums to the 
depressed market valuations of targets, underscoring a growing 
trend of shareholder activism in Asia. 
    With the city-state's nearly 300 small- and micro-cap 
companies currently trading on average at half the valuations of 
Asia-Pacific, founders of several firms have lined up plans to 
take the companies private, analysts say. 
    Minority investors traditionally have had little influence 
with the management of companies in Singapore, with most of the 
small businesses owned by families. They've also had little 
support from the bigger institutional investors who mostly steer 
clear of the smaller companies due to the scarcity of 
freely-held shares for trading. 
    All these have meant that managements have generally been 
able to push through their decisions, including on deals to take 
their companies private, without much shareholder opposition. 
But that is changing. 
    "Minority shareholders are getting more educated and are 
asking management and boards to be more accountable for their 
actions," David Gerald, president of investor body Securities 
Investors Association (Singapore), told Reuters. 
    In January, Singapore Airlines  SIAL.SI  had to sweeten its 
offer to buy out Tiger Airways  TAHL.SI  by 10 percent after the 
association weighed on the company to improve its offer. 
 urn:newsml:reuters.com:*:nL3N14O35U 
    And this month, the founder of OSIM International  OSIL.SI , 
who holds about 68 percent of the Singapore massage chair maker, 
launched a S$300 million ($219 million) offer to buy out 
minority shareholders.  urn:newsml:reuters.com:*:nL4N16F14W 
    But some traders are betting on an improved offer as the 
stock is trading 4 percent above its offer price. DBS Vickers 
Securities' analysts said OSIM's founder would need to increase 
his price by at least 14 percent to win shareholders' approval. 
    "People have been able to look at cash-rich listed 
corporates acquiring and say 'hang on, you can afford to pay 
more'," said David Smith, head of corporate governance at 
Aberdeen Asset Management Asia. "You'll probably see more of 
this." 
     
    WAVE OF DEALS EXPECTED 
    Shareholders are also flexing their muscles elsewhere in 
Asia. In November, Hong Kong's minority shareholders scuppered a 
$12.4 billion bid by Asia's richest man Li Ka-shing to merge his 
listed energy and infrastructure units.  urn:newsml:reuters.com:*:nL3N13J3L9  
    In Singapore, attractive valuations and closely-held shares 
of small companies are presenting an opportunity for managements 
to pursue take-private transactions. 
    Of the city-state's around 750 companies, less than a fifth 
have a free float in excess of S$200 million, data from Thomson 
Reuters StarMine shows, limiting the appeal for institutional 
investors to take a stake. 
    And Singapore's small- and micro-cap companies are currently 
trading at a price-to-earnings multiple of 13.8 times compared 
with a multiple of 26.3 for Asia Pacific, StarMine data shows. 
    DBS Vickers expects a wave of take-private deals among 
small- and mid-cap companies in Singapore. In a study, it picked 
PACC Offshore  PACC.SI , Pacific Radiance,  PACI.SI , Pan-United 
 PANU.SI , Tat Hong  TAT.SI  and Banyan Tree  BANY.SI  as 
potential targets.  
    In drawing up the list, the brokerage evaluated criteria 
such as stocks that had declined by more than 20 percent over 
the last six to 24 months, very low price-to-book ratio and 
companies where major shareholders owned more than 50 percent. 
    When contacted by Reuters, a spokeswoman at Pan-United said 
the company had no plans to privatise. Tat Hong referred to its 
statement this month that it had been approached in connection 
with a potential transaction. PACC Offshore, Pacific Radiance 
and Banyan Tree had no immediate comment. 
    Aberdeen's Smith urged a more pro-active stance from  
independent advisers on deals. 
    "What I would want to see, not just in Singapore but around 
the region is a little bit more backbone from independent 
advisers and financial advisers to say 'look, this is not a 
great offer and you should reject this'."  
($1 = 1.3686 Singapore dollars) 
 
 (Reporting by Paige Lim and Anshuman Daga; Editing by 
Muralikumar Anantharaman) 
 ((anshuman.daga@thomsonreuters.com; +65 64035676; Reuters 
Messaging: anshuman.daga.thomsonreuters.com@reuters.net)) 
 
Keywords: SINGAPORE BUYOUTS/