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

Securities Investors Association (Singapore) president David Gerald says minority shareholders are asking management and boards to be more accountable for their actions.
Securities Investors Association (Singapore) president David Gerald says minority shareholders are asking management and boards to be more accountable for their actions.ST FILE PHOTO

SINGAPORE (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 Singapore'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 had to sweeten its offer to buy out Tiger Airways by 10 per cent after the association weighed on the company to improve its offer.

And this month, the founder of Osim International, who holds about 68 per cent of the Singapore massage chair maker, launched a S$300 million offer to buy out minority shareholders.

But some traders are betting on an improved offer as the stock is trading 4 per cent above its offer price. DBS Vickers Securities' analysts said OSIM's founder would need to increase his price by at least 14 per cent 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."

Shareholders are also flexing their muscles elsewhere in Asia. In November, Hong Kong's minority shareholders scuppered a US$12.4 billion bid by Asia's richest man Li Ka-shing to merge his listed energy and infrastructure units.

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, Pacific Radiance,, Pan-United, Tat Hong and Banyan Tree as potential targets.

In drawing up the list, the brokerage evaluated criteria such as stocks that had declined by more than 20 per cent over the last six to 24 months, very low price-to-book ratio and companies where major shareholders owned more than 50 per cent.

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'."