Sabana Reit says nothing 'unusual or improper' about merger voting process

SINGAPORE (THE BUSINESS TIMES) - There is "nothing unusual or improper" about the voting procedures adopted for the proposed merger of Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) and ESR-Reit.

Sabana Reit's manager made that point in a bourse filing on Wednesday morning (Dec 2) in response to concerns raised by the deal's key opponents, adding that the procedures apply equally to all unit holders of the trust.

The voting procedures are also the same as those adopted in all Reit mergers in Singapore to date, in that unit holders - including nominee companies and custodians - were allowed to appoint only one proxy, and unit holders could only vote their units in one direction.

The approach for the Sabana-ESR merger and scheme has also been adopted for schemes of arrangement relating to public takeover transactions involving Singapore-listed companies, the manager said.

Sabana Reit is seeking approval for an amendment to its trust deed to allow for the appointment of only one proxy for the scheme meeting (versus two proxies for any meeting of the Reit) by custodians.

If approved at Friday's extraordinary general meeting (EGM), this amendment will be applicable for the scheme meeting later that day, when unit holders vote on the merger.

Quarz Capital Management and Black Crane Capital recently raised concerns that this voting process may be stacked against their interests. The two activist funds have for months publicly opposed the controversial merger as a "panic sell" of Sabana Reit at a substantial discount.

In a Nov 30 letter to the Monetary Authority of Singapore, Quarz and Black Crane flagged potential "voting irregularities" as a result of that "one-proxy rule" for custodians or nominee companies (typically banks or brokers) submitting the vote of unit holders who are their clients.

The fund managers claimed that the restrictions, for custodians to submit only one proxy form, would mean that custodians cannot fully represent all unit holders' votes at the scheme meeting.

They also said certain custodian banks were determining their proxy vote using either an "offsetting" or a "simple majority" rule.

For example, assuming investors A and B held Sabana Reit units via a custodian bank, and A submits three votes in favour while B submits two votes against, a custodian using the "simple majority" rule would submit three votes in favour but none against the merger.

And under the "offsetting" rule, the same situation described above would see the custodian submit only one vote in favour. The votes against would be offset by the votes in favour.

On Wednesday, the Sabana Reit manager noted that it is not privy to and has no control over the internal processes of the nominee companies and custodians or how they take instructions from their clients.

Therefore, it is not in a position to comment on these internal processes, the manager added.

It will act upon the proxy forms that are duly completed and submitted by the unit holders, including nominee companies and custodians.

"A proper process is in place to ensure that the proxy forms are counted and verified," the Sabana Reit manager said. The unit registrar, Boardroom Corporate & Advisory Services, will receive and count the proxy forms, after which the scrutineer, DrewCorp Services, will scrutinise and verify the forms.

In order for the scheme resolution to be passed at Friday's scheme meeting, both the headcount condition - approval by more than half of the total number of Sabana Reit unit holders present and voting - and the value condition - approval by at least 75 per cent of the value of units voted - have to be fulfilled.

The manager said on Wednesday that requiring unit holders to appoint only one proxy and to cast all the votes they use at the scheme meeting in one way ensures that each proxy submitted will count as one, under the headcount condition.

"This will enable the Sabana manager to determine clearly if the Sabana unit holder is voting for or against the scheme for the purposes of the headcount condition," the manager said.

The virtual EGM and scheme meeting will be held this Friday at 2pm and 2.30pm respectively, and voting is only permitted via proxy forms that have been submitted by Tuesday.

Units of Sabana Reit closed at 35 cents on Tuesday, up 1.5 cents or 4.5 per cent. ESR-Reit finished unchanged at 40.5 cents.

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