Golden Energy shareholders should accept revised all-cash offer, says KGI Securities

SINGAPORE – Take the money and move on.

That is the advice KGI Securities is giving shareholders of Golden Energy and Resources (Gear) following the Singapore-listed company’s move last week to

raise the all-cash offer for its privatisation by 15 per cent to 97.3 cents,

from 84.6 cents initially.

The improved offer came after shareholder criticism that the initial offer was too low and a call by the Securities Investors Association (Singapore) for better exit terms.

Citing the uncertain outlook for coal and the fact that the offer price is the highest for Gear since its listing, analyst Chen Guangzhi of KGI Securities said shareholders would be better off selling to offeror Dian Swastatika Sentosa (DSS), which owns 77.5 per cent of Gear.

DSS is owned by Indonesia’s billionaire Widjaja family, who own conglomerate Sinar Mas Group.

“Given the current macro environment, it is better for investors to keep cash from a prudent perspective,” Mr Chen wrote. Moreover, the all-cash option offers higher returns to shareholders, compared with the other option, “which exposes them to liquidity and forex risks”.

Gear in November proposed a break-up and delisting

via two options that include a distribution in-specie of its 62.5 per cent stake in Indonesia-listed thermal coal producer Golden Energy Mines (Gems). Following that distribution, shareholders could opt to receive all cash or a combination of cash and Gems shares.

Both options include an upfront cash portion, which Gear raised last week to 18.1 cents, 13 per cent higher than the original 16 cents.

The cash-and-shares option now works out to 96.4 cents in total value, some 7.8 per cent lower than $1.045 previously. This is due to the fall in Gems’ share price and the appreciation of the Singapore dollar against the Indonesian rupiah, Gear said last week.

But analyst Arun George of investment advisory site Smartkarma had a different take on Gear’s revised offer, arguing that it was “still not good enough”.

In a March 19 report, Mr George said the revised upfront cash portion of 18.1 cents per share remains below the market value of Gear’s stake in its Australian assets, namely Stanmore Coal and Ravenswood Gold Group.

“The delisting price represents the Widjaja family’s valuation of Gear excluding Gems, which is primarily its 64.01 per cent stake in Stanmore and its 50-50 joint venture with EMR Capital in Ravenswood Gold,” he said in the report.

At the last close price of A$3.19 per share, Gear’s 64.01 per cent stake in Stanmore is worth 63 Singapore cents per share, Mr George said. Adjusting for the net debt, the Stanmore stake is worth 39.8 Singapore cents per share.

“In other words, the revised delisting proposal is still 54 per cent below the value of the Stanmore stake adjusted for Gems’ net cash position,” he said.

But Mr George sees the privatisation going through, given that the majority shareholders already have a huge portion of the shares, the lack of institutional investors and apathy from retail investors.

KGI Securities’ Mr Chen urged shareholders to take the second chance to realise profits. “First, the outlook for coal will not be as good as it was last year. Besides the Russia-Ukraine military conflict, which is a non-recurring factor, China’s recovery is gloomy.

“Coal, like most hard commodities, is cyclical. China’s demand plays a decisive role in its pricing. China’s credit stimulus peaked in the third quarter of 2022 and, hence, coal is expected to go back to a downward trajectory.”

Second, the 97.3 cents offer price tops Gear’s highest price since its reverse takeover in 2015, and the 15 per cent hike in its all-cash offer is among the highest recent offer price revisions, Mr Chen said. Current shareholders who may or may not take the previous placements of 67 cents and 30.5 cents “will not be subject to losses”.