Chip Eng Seng

Why chip eng seng dropped instead of gapping up to the bulk purchase price of 1.08? Is the bulk purchase considered bad news?

I see a post quizzing this morning’s sharp drop in Chip Eng Seng’s share price. Maybe this is because the founders are selling out or ........ maybe (I am possibly not 100% correct on this) .............

As a holder of Chip Eng Seng’s Bonds, I believe the ownership-change-news of last Friday triggers the change-of-control provision under the Bond’s terms. Chip Eng Seng has ~ SGD 240 Million of outstanding debt paper for which the note-holders have a put option, i.e. note-holders can now, at their option, oblige the Company to purchase the bond debt at par. The two outstanding notes, which have a relatively low coupon in today’s market, are currently trading below par - meaning either i) the Company (not Ms. Tang, the acquirer of the 29% equity) has to redeem the bonds at par (then issuing new notes with a much higher coupon??) or ii) the Company will have to substantially enhance the terms for the existing note-holders, e.g. raise the coupon, to discourage them from exercising their put option. Either way, if Ms. Tang is not going to pursue a full takeover, then the company will be saddled with a higher cost of servicing its not insignificant bond debt.  Just my two cents.

Vested in the Bonds,

The Lim family had looked after CES minority shareholders well over the past years. Disappointingly, in exiting most of their interest in CES in the Tang deal, the family had not taken into consideration small shareholders’ interest. This is witnessed by the market price of CES stock today versus the sale price to Celine Tang (87ct vs $1.08). The big shareholders were able to exit at a premium while smaller shareholders see their stock being traded at a sharp discount to the $1.08 exit price (for the Lims) and also get a new major shareholder they apparently are not too enthusiastic about.

There was no provision in the sale to have smaller shareholders benefit from the deal, with the new buyer not needing to launch an offer for the rest of CES shares.

If it’s any consolation, the new buyer is incurring a paper loss of nearly $40m in a matter of one trading day. A way to reduce Ms Tang’s loss is perhaps to average down her cost by buying in the market. But at last, that would trigger a mandatory takeover offer, which she does not seem to want to.

I wonder if Simon Cheong, whose private investment vehicle, owns just under 5% of CES stock (as shown in the last annual report) would be interested in raising his stake in CES in the open market now, since he will be buying them at a sharp discount to Celine Tang's price.

CES' shareholding structure shows no majority shareholder owning near to 50% stake, with Celine's near-30% probably the highest now. This compares with most of the other 2nd liner property developer stocks like Hiap Hoe, Heeton, etc.

HOT STOCK
Chip Eng Seng shares tumble 10% with no mandatory offer in sight
Counter down S$0.095 to S$0.85; SingHaiyi's Celine Tang bought 29.73% stake, just short of the threshold for a mandatory offer
TUE, OCT 09, 2018 - 5:50 AM
MARISSA LEEmarilee@sph.com.sg@MarissaLeeBT
 Buy the rumour
Singapore

CHIP ENG SENG shares crashed 10 per cent on Monday as punters wagering on a takeover offer were wrong-footed, when the buyer of the controlling Lim family's 29.73 per cent stake avoided the 30-per cent threshold that would have triggered a mandatory takeover offer.

SingHaiyi managing director Celine Tang forked out S$201 million to become Chip Eng Seng's single largest shareholder on Monday, through married deals with seven shareholders including founder Lim Tiam Seng that were done at S$1.08 per share, a premium to the market price. The bulk of the purchase - comprising a 26.98 per cent stake - was made jointly with her husband Gordon Tang. Separately, Ms Tang holds a deemed interest of 2.75 per cent.

By keeping her ownership below 30 per cent, Ms Tang is not required to make a mandatory offer for the rest of Chip Eng Seng at the same price that the insiders were bought out.

Chip Eng Seng shares gapped down at the open and finished the day 9.5 Singapore cents lower at S$0.85 on a turnover of 197.6 million. Married deals accounted for 186.1 million shares traded.

The counter had surged 13.2 per cent last week before trading was halted last Friday and Ms Tang's purchase announced.

In response to queries from The Business Times, a spokesperson for Ms Tang emphasised that her purchase was made "entirely in Ms Celine Tang's personal capacity".

"As such, it is irrelevant for SingHaiyi to comment on this private transaction." Ms Tang declined to comment on whether she intends to make a general offer for Chip Eng Seng.

Separately, Chip Eng Seng chief executive Raymond Chia told BT that he will continue to run the property and construction company as chief executive.

Mr Chia said: "I'm not able to comment (on the change in ownership) because it was a family decision... Very soon we will have to convene a board meeting, from there there will be some minor changes."

He declined to comment on talks with Ms Tang, noting only that "Chip Eng Seng is a good name" with a solid track record. Although his wife Lim Sock Joo sold some of her shares to Ms Tang, Mr Chia did not sell any. He still owns a 1.78 per cent direct interest in Chip Eng Seng.

Ms Tang and property group SingHaiyi are active players in the real estate scene.

SingHaiyi itself is the result of a 2013 takeover of the former SingXpress Land by Ms Tang and her husband.

In December, SingHaiyi took up a small stake in Australia-listed Cromwell Property Group.

In 2016, Ms Tang took the helm of property developer OKH Global, in which the Tangs had acquired a 44.3 per cent stake via the issuance of new shares at a discount to market price.

That deal took place after OKH shares suffered a sharp selldown in March 2016, when scrip pledged by its former executive chairman to certain banks were forcibly sold.

Source: Business Times

Looking at the price movement prior to the announcement, it seems that the market had some inkling about some sensitive news, although there might not have been a 100% clarity about it. Those who piled in ahead then sold on the news, as expected. The market probably can’t digest this purge at the moment, especially if they are bought with a “contra off” agenda.

In addition, investors probably dislike the move too, or are uncertain about how the change in majority ownership will affect the path of CES. There will definitely be some changes in board of directors or even management, and this brings about some anxiety.

Right now, we will have to see if Simon Cheong (through his investment vehicle Simmic, which owns 4.64% of CES) is happy with this change of majority ownership, and if he is not, what kind of response he will take. He may very well be a sleeping investor, but he also would want his investment to have good returns. Will he dislike the ownership as much as the market seems to dislike it? If he does, what’s next?

Meanwhile, Celine Tang might also feel bad to see an immediate paper loss of now over $50 million in just a couple of days. Will something be done about that pain?

(09-10-2018, 10:51 AM)Sumeria Wrote: Looking at the price movement prior to the announcement, it seems that the market had some inkling about some sensitive news, although there might not have been a 100% clarity about it. Those who piled in ahead then sold on the news, as expected. The market probably can’t digest this purge at the moment, especially if they are bought with a “contra off” agenda.

In addition, investors probably dislike the move too, or are uncertain about how the change in majority ownership will affect the path of CES. There will definitely be some changes in board of directors or even management, and this brings about some anxiety.

Right now, we will have to see if Simon Cheong (through his investment vehicle Simmic, which owns 4.64% of CES) is happy with this change of majority ownership, and if he is not, what kind of response he will take. He may very well be a sleeping investor, but he also would want his investment to have good returns. Will he dislike the ownership as much as the market seems to dislike it? If he does, what’s next?

Meanwhile, Celine Tang might also feel bad to see an immediate paper loss of now over $50 million in just a couple of days. Will something be done about that pain?

The share price dropped back to pre-speculation level, and assuming this was the price that Miss Tang (psychologically) anchored on to buy over at a premium, then she would simply have first enjoyed a paper reduction in premium offered, followed by an increase back to previous premium level. Nothing more or less.

I would also believe such big players who are looking at control, suffer from less anxieties about market price fluctuations than the OPMI - We (OPMI) can only buy and sell, but they can buy/sell/control. In this case, it is much easier to distract yourself via thinking of how to control the company, then "suffer" from buy/sell decisions.

(09-10-2018, 11:17 AM)weijian Wrote: The share price dropped back to pre-speculation level, and assuming this was the price that Miss Tang (psychologically) anchored on to buy over at a premium, then she would simply have first enjoyed a paper reduction in premium offered, followed by an increase back to previous premium level. Nothing more or less.

Hi Weijian, I couldn't quite understand what do you mean here, do you mind explain it a little bit more for my benefits? Thank you!

(09-10-2018, 05:45 PM)Ben Wrote:

(09-10-2018, 11:17 AM)weijian Wrote: The share price dropped back to pre-speculation level, and assuming this was the price that Miss Tang (psychologically) anchored on to buy over at a premium, then she would simply have first enjoyed a paper reduction in premium offered, followed by an increase back to previous premium level. Nothing more or less.

Hi Weijian, I couldn't quite understand what do you mean here, do you mind explain it a little bit more for my benefits? Thank you!

hi Ben,
Some of us were thinking maybe Miss Tang might feel bad with "a paper loss" when price dropped back to pre speculation level of ~80-85cents. So what i did was to try to trace back her mental journey.

Normally to buy a large block of shares, there will be some premium to the market and assume the pre-speculation price of 80-85cents market price was the base price for negotiation. She was already mentally prepared to pay a ~20% premium at 1.08sgd with 80-85cents as the "anchor". When speculation kicked in, the market price increased and hence the premium she "had to pay" reduced as the anchor moved to ~95cts. When everything was unveiled, probably speculators were disappointed there was no meat and sold out resulting in the prices reducing back to original level of 80-85cents. Pre speculation and post speculation level, she is still paying a 20% premium, nothing more or less.

So end of the day, if she had changed her "anchor" during this time with how the market responds, she would have suffered a mental paper gain (via reduced in premium paid) followed by a mental paper loss. If she didn't move her anchor, then psychologically she is "balanced" and probably wouldn't "feel bad to see an immediate paper loss" as Sumeria is pondering.

Thanks for sharing your thoughts Weijian! I understand you now.

If Ms Tang were to mount a takeover now (or later), does it means she has to offer the rest of the SH at $1.08, or above?

I was thinking why the Lim family is giving up ownership of CES, after spending their entire life building up the company to what it is today. My personal view is this; the founding members feel that their time (and relevance) is probably over. Those who attended the AGM would realised that Mr Lim can’t even speak proper English. He delivered his opening messages in Mandarin instead. Please don’t get me wrong, I am not judging a person ability by his language capability. But imaging if you can’t even speak reasonable English, it is quite obvious you will face a lot of difficulties in running CES in its current forms and shape. Especially so when CES is investing more money in Australia (Btw, SingHaiyi has a small stake in Australia listed Cromwell Property Group, is this one of the reasons Ms Tang is interested in CES?)

Also, the fact that the CEO is a son-in-law of Mr Lim, probably, and purely my own opinion only, that Mr Lim offspring is not interested in taking over the running of the company.

So with no succession plan to pass the business to their direct family members, plus there are advance in age and also incapable of running the company effectively, they probably think a better option is to sell out and enjoy life.

So my own personal conclusion is this; there is nothing wrong in the fundamental of the company. And so the change of ownership should not be a big concern. The CEO is still holding on to his shares and running the company. Plus, now there are two tycoons as the shareholders of the company, and interesting things could happen.