SINGAPORE – The Securities Investors Association (Singapore), or Sias, has met senior officials of Golden Energy and Resources (Gear) to urge the company to improve its privatisation offer to its shareholders.
Sias cited several reasons for this, including Gear’s cash holdings, the appreciation of some of its assets and the fact that most shareholders prefer an all-cash buyout.
Singapore-listed Gear – which is 77.5 per cent-owned by Indonesia-listed Dian Swastatika Sentosa, which is in turn 59.9 per cent-owned by Sinar Mas Tunggal – has been criticised by shareholders for allegedly putting out a “lowball” privatisation offer.
The company 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 the distribution, Gear then proposes to delist itself from the Singapore Exchange with an exit offer price of 16 cents per share.
For the distribution, shareholders could elect to receive 1.3936 Gems shares for every Gear share they hold; or a cash consideration of 7,664.8 rupiah (which prices their entitlement to 1.3936 Gems shares at 5,500 rupiah per share).
Shareholders who opt to receive Gems shares will get a total effective consideration of $1.045 per share (based on the market price of Gems shares of 7,100 rupiah at the time of the announcement). But shareholders who choose to take the cash option will get just 84.6 cents per share.
Given the outcry, Sias sent a letter to Gear’s board on Feb 28. On Monday, Sias president and chief executive David Gerald met Gear executive director Mark Zhou and other senior management.
“The officials were informed that shareholders feel that if Gear is serious about the privatisation, it would be beneficial to the offeror to raise its exit offer (from 16 cents) to something substantial and allow it to carry on with its strategic reorganisation,” said Mr Gerald in a statement.
He told the Singapore company that the listed group could be more generous, given that it generated a positive cash flow of US$1.73 billion (S$2.34 billion) from operating activities and had close to US$1 billion in cash as at Dec 31, 2022, but did not declare any dividends.
Gear in its response had maintained that it needed to keep its funds for commitments such as mergers and acquisitions, said Mr Gerald.
Sias also told Gear that most Singapore shareholders preferred the cash option over the cash-plus script option for Gems. “It was put to the Gear officials that the proposal to distribute Gems should not be conflated with the privatisation of Gear. These are two different transactions and the board should manage the two processes independently,” said Mr Gerald.
Sias also noted that the exit offer of 16 cents significantly undervalues Gear’s 64 per cent stake in Australian-listed coal miner Stanmore Resources.
The Singapore Exchange Regulation has also stepped into the fray to remind Gear’s board to ensure that its independent financial adviser (IFA), W Capital, pays attention to appropriate valuation methods and “assumptions that can withstand scrutiny”.
In particular, shareholders complain that Gear did not take into account the steep rise in the value of its Australian assets – Stanmore and 50 per cent-owned gold miner Ravenswood Gold Group. The listed market values of both companies have risen by more than 20 per cent over the past six months, adding significantly to the underlying value of Gear.
Gear has taken in Sias’ points but said its professional advisers should be given time to follow the due legal process so that the proposed transactions can be sufficiently certain, said Mr Gerald. This includes obtaining the requisite regulatory approvals in Indonesia and Singapore.
Mr Gerald urged Gear to meet its shareholders in a dialogue, to be organised by Sias, as soon as the circular on the deal is out to give shareholders the opportunity to pose questions and help them make an informed decision.
Mr Gerald said: “It will also allow the board and senior management of Gear to clearly explain the reasons for their offer. When the circular and IFA letter are dispatched, shareholders will have more information to consider also the merits and assess their various options.”
The long-stop date for the satisfaction of exit conditions has been extended from April 9 to Aug 9, 2023. The extension of requirement to get shareholder approval at an extraordinary general meeting is July 9.