Best World

[CY09]

Looking at comparable, it does seem a fair offer is a buy out at 10-15 times PE range. Financially it is possible because at 10x PE, 23 cents EPS, the buyout amount is only $620 million and Best World has cash reserves of $386 million and a business which delivers $100 million in free cash flow presumably.

I think it has nothing to do with integrity of company but the integrity of the 3 top mgmt personnel. The fact that this year they took in a large bonus due to EPS growth, generated record cashflow but decided to cut off dividends completely; is a first sign of thinking to profit off the SGX suspended status. To make it worse, the Independent Directors (ID) didn't openly voice their objection against it. This to me is unpalatable given how the 2 are (i) local businesswomen, (ii) the failures of Singapore's IDs objectivity and (iii) reminded me of Sing holdings (who was better and gave measly dividends).

Best World has to be fair and equitable and at least offer a decent offer price. Of course, the company may decide to lump in large expenses magically to reduce EPS down to 18 cents for FY 2021 and then offer a 10 times P/E at 18 cents, and say it is fair using comparable approach.

[donmihaihai]

When one is not able to say yes it is legit when asked already speak loud and clear. It is anything but legit. As SGX reg co. And as social, it is only correct to let co. With legit businesses to list only. 

On the extreme end. Loan shark, sex/ child trafficking can be very profitable. 

Now to buyout the shareholders and delist, why has it that a fair value must be offered when it is the only exit at this moment with little possibility of another offer? There is no bidding and the offer price will likely be at where the management feel they has lot of meat on the table after completion and how they like to be seemed.

[karlmarx]

OPMIs are at a severe negotiating disadvantage since the shares have been delisted for a long time. Their eagerness to get out of an illiquid stock gives them no leverage in getting a good offer.

If I were an OPMI, I will be quite glad to get out at the last transacted price. Of course, if your average price is much higher than last transacted price, you may not feel the same way.

But if I were the offerors, I will probably offer 30% less than last transacted price, because I know I could probably take advantage of the opmi's eagerness to exit.

It was mentioned in the announcement that the offerors will require financing in the event of an offer. So some institutional investor/bank will have to do their DD and be assured that they could pay back any loan. If they can't secure financing, opmi could remain stuck, while they pay themselves nice bonuses.

Which ever way this story develops, the controlling shareholders look like winners to me.

[dreamybear]

I have received a reply from regco, they mention for me to make reference to the SGX announcement from Best World

Thanks for your help and the update. 

I wonder is it fair to interpret that there were already discussions between RegCo and BW before BW releases the announcement(s) *food for thought*  

Wld be grateful if buddies could educate me on the funding portion - What kind of alternatives would typically be available to BW in such a suspended/delisting scenario ? E.g. on Kelvin's blog 
"In a typical leveraged buyout, a bank is willing to lend money based on a ratio called Debt/EBITDA. The range is between 3x to 6x ...... BWL could borrow $574.6 million.on." 
https://kelvestor.com/blog/whats-a-fair-...rnational/

Do lenders consider the fact that the shares are suspended or the main criteria are past years' cashflow/profitability and assets/current cash balance ? What loan quantum wld be considered comfortable or stretched ?

[CY09]

It's a subjective question. This is because financial institutions (FI) don't know if the business model of Best World International is legit or that it's balance sheet numbers are real or otherwise.

If we can be placed in the position of FI and are able to assess inside information that ascertains the published audited numbers are real and business model is legit, getting a leveraged buyout of $600 million with a syndicate of FI is close to 99% certain. This is based on common sense that I am lending 600 million to finance a business who generates cashflow of 100 mil annually and has 390 million of cash and industrial land at Tuas with a factory to back it.

A $600 mil buyout points to a buyback in the region of $2.30 per share.

Looking at Co-Chairman, Doreen Tan's description on the annual report, one will notice the likelihood of her being able to approach a certain local bank to arrange a syndicate loan is in the realm of certainty, IF, she herself believes the company assets and model is legit. Next, it is up to the credit officers of FIs to assess the credibility of the business model and assets.

To summarize, if a deal does not materialize due to the reason of inability to obtain financing, it raises severe red flags and point to the possibility of either (i) fraud or (ii) an illegal business model which warrants imprisonment.

Common sense wise, any FI syndicate should be able to offer at least $300 million as financing and together with the cash hoard of $390 million, clobbering a financing exercise for buyout of minority stakes is likely.

[donmihaihai]

It is certainly not subjective to me. In short, with my limited understanding, my answer is I don’t know. What I do know is not all businesses/ operation operate in either black or write, a lot of times, it is just grey but when asked is your business legit, the standard reply will be in line of yes and we will uphold the highest standard, etc etc. This is what Best World failed to do(or hired outsider willing to put their head on the chopping board), which is why it is still suspended.

The history of direct selling in China is I don’t know, but I call it messy. Ban and not ban, abuse by players and now you have selling through social media(which is big and big might not be beautiful in the current China). Best World business model in China is a direct result of all these. My best guess is even Best World itself doesn’t know whether its business model in China is legit or not and everything is good until it got abused and then crack down.

As of Best World financials, with all the spotlight, the latest audit did not say any materials error so should be good but I have my reservations with my quick look at their number some time back. Like I said earlier, on the extreme end, even loan shark can generate superb results. In fact it should be since there is less competition. Everything is good until police raid for the extremes.

As of buyout at fair value, I hope you get what you wish for but my question to you is, if you are the owner manager, with your knees deep in the current situation, how much will you offer? Buying out at fair value is honourable but has the owner manager demonstrated that so far? The whole equation change when there is a bidding, eg F&N to SPH.

And as opmi, what can you do if the offer is cheap and trading is suspended? Of course, bitch to regulator, regulator point back to Co…………..

My last post on this and it is likely that I would be wrong and I see some bitching, see some trying to influence decision publicly and also see investors who are unable to look at the situation rationally when the chips are down.

[dreamybear]

To be frank, in my view, the FY EPS estimate is on the low side. If one were to reference past years' FS, Q4 is traditionally very strong, and I think this FY will be no different. However, I hv stopped following the financials closely simply because I think there is no point, there is no avenue for market price discovery, for e.g. so what if a stock is a super value stock - net cash, low P/E, low P/B, high ROE, etc ? Who is going to and how can one pay a fair/decent/high/desired price for your shares ? What is a realistic chance for trading resumption after such a long suspension and despite completing the independent review ? There is also no timeline to lift the suspension. What if the "Mexican standoff" kind of situation prolongs for another few years - i.e. no trading resumption vs no delist offers ? Wld there be a higher offer price by waiting a few years down the road ? What if for whatever reasons(maybe unforeseen) the business make a turn for the worst few years down the road ? Who knows ? How to sell ? In investing, we need to consider both risks & returns. To put it bluntly & I certainly do not mean any disrespect - in the worst case, there is a possibility that a minority shareholder(considering age, illness, unforeseen circumstances) will not live to see any money returned.

If we look at the context of exit offers, I think the main purpose is to provide an avenue for shareholders to exit and not so much on realising the (intrinsic) value of the business. Hence, I think using P/E valuation metrics to justify the exit price may be considered optimistic. Instead, there will probably be references to the last traded prices, NAV and a % premium, and then explaining that shareholders can now realize the value of their shares which are otherwise stuck. So I think we hv to manage our expectations.

The BW BOD have excellent credentials*, other than Dora, I think there will be others who have business connections with financial institutions to help with the financing issue. But what baffles me is despite the type of experience / expertise(esp the IDs), the suspension issue could not be resolved. Perhaps the issue is really very complicated and delisting is the best way forward for all parties.

Regarding the China business model, as a retail investor, I think what cld really help clear the air is for RegCo to explain why trading cannot resume, and not leave it to the company's announcements. If RegCo's stand is BW, as a DS company, shd have acquired DS licence before the operations, then it can maybe fine/penalize the company and allow for the mkt to assess the situation or impose delisting (because it doesn't meet listing rules), etc. It is much better than the indefinite suspension which is unfair to OPMIs who may have invested way before the saga happened and may not have the sufficient legal knowledge to know that the company is breaching the listing rules. Also DS companies which wish to list in SGX in the future wld then be clearer about the SGX requirements.

Kudos also to buddy Kelvesy for bringing many shareholders together, and heartening to see people actively stepping fwd to discuss ways to help ourselves. Hopefully, that wld also help to catalyse the otherwise relatively "quite passive" local investing community investing in our local mkt.

In an alternate happier(for dreamybear) universe where BW is trading in the market, I would be happy to hold till it almost reaches Nuskin's size. But dreams are not reality.

*https://www.bestworld.com.sg/board-of-directors.html

[weijian]

It's a subjective question. This is because financial institutions (FI) don't know if the business model of Best World International is legit or that it's balance sheet numbers are real or otherwise.

An alternative to financing would be teaming up with Private Equity, whom will be providing the "interim financing" in terms of cash/convertible bonds. Past examples on the local market include Challenger/Penguin/Select Group but these are generally small caps and BW might be a tad too big for the players active on the market. Bigger regional (PE) players probably have to come in though.

[¯|_(ツ)_/¯]

As an ex-shareholder (patiently waiting to be vested again), I would says that Don's analysis make a lot of sense.

I would assume that the best way to start a price discovery would be from it's last suspended price aka roughly $1.36.

Stay home and stay safe, everyone.

[¯|_(ツ)_/¯]

bwl@136 (suspended)
EGM on 31 Dec 2021@10am
(link to circular)

out of the 3 resolution, I find that the resolution 2 is rather suspicious.
Could it be the trigger for the other 2 resolution? I thought it would be so.

c.f. pg 18 of the circular, basically bwl accidentally make some illegitimate purchase of it's own share 16 May 2018 - 23 Apr 2019 at $1.23 to $2.12.

Resolution #2 is to make this purchase legitimate.
Resolution #1 is to remove current auditor.
Resolution #3 is to prepare for further purchases.


Do send in your vote if you're bwl's shareholder.
I read thru a few times, that's the only thing you could do. 
No attendance.

In any case, as a ex-shareholder, I'm eagerly waiting for bwl to resume it's trading. Once the trading started, I hope to buy some at or below $1.36.

Watch Dora's story again, to understand why:


Gratitude.