Activists investors take aim at Singapore's 'buy, pray, hope' model

SINGAPORE (BLOOMBERG) - 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 Ltd urged retailer Metro Holdings Ltd to return excess cash to investors and Dektos Investment Corp pushed Geo Energy Resources Ltd to change its debt structure, saying the coal-miner's shares are undervalued by as much as 60 per cent.

The investors are challenging a clubby, consensus-driven corporate culture where shareholder interests have traditionally taken a back seat. In doing so, they're shining a light on a swathe of small companies that are undervalued, flush with cash and often ignored by analysts.

"We are on the cusp of change here," said 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 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 US, Bloomberg-compiled data show. Meanwhile, they hold more cash and their return on assets is higher than in the US and comparable with Western Europe. What's more, such companies in Singapore are less likely to be covered by analysts, the data show.

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 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, Mr Chi said. Real estate, electronics and engineering are all attractive sectors, according to Chi.

From billionaire hedge fund manager Paul Elliott Singer taking on Samsung Electronics and Bank of East Asia to Dan Loeb battling Seven & I Holdings Co. this year, activist investing is gaining ground in Asia. Japan especially has been a target, with companies from Suzuki Motor to Sony and robot maker Fanuc Corp getting pushed to bolster returns.

Singapore, by comparison, has been relatively quiet. 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," said David Gerald, president of the Securities Investors Association of Singapore, an industry group representing shareholders.

That may be starting to change as investors realize that reliability and transparency of local accounting and regulatory frameworks can work in their favor. Activist investors and short sellers are encouraging Singaporean shareholders to speak out at annual meetings and in discussions with management, said Dektos founder Roland Thng.

"In the past in Singapore, it was just a case of 'I am a shareholder, I buy, I pray, I hope,"' Mr Thng said. "Now it's a case of 'I let my money really work hard for me. But with my voice, I can make it faster."'

Last month, Mr Thng told Bloomberg in an interview that coal miner Geo Energy was "massively" undervalued and his fund had urged the company to cut funding costs and pay a dividend once earnings recover. A few days later Geo Energy announced a coal mine management agreement, sending the stock to an 11 percent two-day gain. Dektos had sold its stake in Geo Energy before Mr Thng's comments, but is seeking to invest in convertible bonds in the company.

It's not that Singapore has been exempt from naming and shaming. Muddy Waters was the first short-seller to test a Singaporean firm, publicly questioning the finances of commodity trader Olam International in 2012, sending its stock plummeting.

Commodity trader Noble Group was attacked in 2015 by two short sellers, including Muddy Waters, who questioned the company's accounting. Noble initially rejected the allegations, but announced management changes and an emergency capital raising as writedowns mounted. It agreed to sell its US Energy unit last month.

While those cases didn't involve activist investors, they paved the way for shareholders to become more vocal. US research firm and hedge fund manager GeoInvesting last week issued a report critical of food processor Sino Grandness Food Industry Group, citing concerns over its reporting of revenues, sending the shares down 8 per cent in two days.

Sino Grandness said GeoInvesting's report "contains allegation or comments based on misconstrued, erroneous and/or inappropriate interpretation of information and reports.

"The more critical approach is spreading to retail investors - a development that will ultimately benefit Singapore, according to Mr Thng.

"Local investors are getting more daring, at least they know that they have the right to do that," he said. "And that will give a boost to Singapore's corporate landscape which still is a bit staid and more focused on consensus than in the US."