Buyouts of S'pore firms set to be more expensive

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 trading on average at half the valuations of Asia-Pacific peers, founders of several firms have lined up plans to take the companies private, analysts say.

Minority investors traditionally have had little influence over the management of companies in Singapore, with most of the small businesses owned by families. They have also had little support from the bigger institutional investors which mostly steer clear of the smaller companies due to the scarcity of freely held shares for trading.

All these have meant that managements have 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 the board to be more accountable for their actions," Mr 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.

This month, the founder of Osim International, who owns about 68 per cent of the Singapore massage chair maker, launched a $300 million offer to buy out minority holders.

But some traders are betting on a better offer as the stock is trading at 4 per cent above its offer price. DBS Vickers Securities said Osim's founder would need to raise 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 Mr David Smith, head of corporate governance at Aberdeen Asset Management Asia.

Shareholders are also flexing their muscles elsewhere in Asia. In November, Hong Kong's minority shareholders scuppered a US$12.4 billion (S$17 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 firms are presenting an opportunity for managements to pursue take-private transactions.

Of its 750 or so companies, fewer than a fifth have a free float in excess of $200 million, data from Thomson Reuters StarMine shows, limiting the appeal for institutional investors to take a stake. And small- and micro-cap companies are 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 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 past 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 Pan-United spokesman said there were 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 comment.

Aberdeen's Mr 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'."


A version of this article appeared in the print edition of The Straits Times on March 29, 2016, with the headline 'Buyouts of S'pore firms set to be more expensive'. Print Edition | Subscribe