Activist investors, having targeted companies in Japan and South Korea in recent years, have discovered a new playground in Asia.
In Singapore, where activist investing was virtually unheard of until now, two companies have found themselves in the crosshairs in the past month alone. Quarz Capital Management urged retailer Metro Holdings to return excess cash to investors and Dektos Investment Corp pushed Geo Energy Resources to change its debt structure, saying the coal miner's shares are undervalued by as much as 60 per cent.
"We are on the cusp of change here," said Dr Lawrence Loh, associate professor at the National University of Singapore and director of the Centre for Governance, Institutions and Organisations at the NUS Business School. "Singapore is probably one of the best-kept secrets, it's a very fertile ground for digging by activist investors."
Singapore-listed companies worth US$500 million (S$690 million) or less are valued at a median 0.6 times the value of their assets, compared with 1.4 times in Western Europe and 1.2 times in the United States, Bloomberg-compiled data shows. Meanwhile, they hold more cash and their return on assets is higher than in the US and comparable with Western Europe's. What's more, such companies in Singapore are less likely to be covered by analysts, the data shows.
Investors like Quarz and Dektos are betting they can unlock hidden value by pushing for change.
While activist investors play a role in efficient price discovery and enhancing corporate governance, they shouldn't spread "false and misleading information", the Monetary Authority of Singapore said in an e-mailed statement.
On Oct 4, when Quarz made public its call for Metro to return cash to shareholders, the stock jumped the most in more than seven years. A week later, the retailer said it's reviewing investment opportunities to deploy cash.
Singapore is a "treasure trove of undervalued small- and mid-cap companies," said Mr Havard Chi, Singapore-based head of research at Quarz.
The fund has a "pipeline of stocks in Singapore" which it intends to target, with one or two firms to be approached within the next 12 months, he said.
Real estate, electronics and engineering are all attractive sectors, according to Mr Chi.
Singapore, by comparison, has been relatively quiet. Mr David Gerald, president of the Securities Investors Association of Singapore, said engaging companies publicly came late to the market because, generally, "boards and senior management prefer a collaborative approach, which is in line with Asian culture".
That may be starting to change as investors realise that reliability and transparency of local accounting and regulatory frameworks can work in their favour.
BLOOMBERG
