Best World

[Corgitator]

Strangely, why weren't the loaned shares recalled straight upon suspension 2+ years back then ?

From the CDP website:


The loan will be terminated if one of the following conditions is met:

• Upon redelivery of the equivalent loaned securities by the borrower to CDP. This indicates the borrower has returned the loan and the loan can be closed
  
• Upon the borrower becoming insolvent or bankrupt
  
• At the request of CDP, where the loaned securities have been suspended from trading on SGX-ST
  
• At the request of CDP where the loaned securities are, or can reasonably be expected to be de-listed from trading on SGX-ST upon announcement made by the listed company
  
• Five business days prior to record date for loaned securities where corporate action events (other than SGD dividend entitlements) have been announced
  
• On the second business day following the date of notice of termination served by CDP on the borrower
  

From my reading, the loan HAS to be terminated whenever there's a corporate action (except for dividends), so I guess that's why the loan is terminated due to the EAO.


However, it seems that CDP could choose to terminate the loan if the stock has been suspended, so I guess you do have a point. But from the reading, CDP could also choose not to exercise this option.

Actually, the $1.36 is the EAO price according to the SGX letter*.

The letter is worded quite poorly, and may have given the reader the wrong impression that the price of $1.36 is pegged to the EAO offer. As ghchua has pointed out, the price of $1.36 is pegged to the last closing price, which just happens to be the EAO price.

I quote the rules from CDP:

A Borrower who fails to return securities on time (or at all) will be required to pay a cash settlement amount.

Where CDP acquired securities to return to the Lender, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the cost incurred by CDP in connection with its acquisition of the securities.

Where the Lender has sold the loaned securities and his sell trade was cash settled under the CDP Clearing Rules, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the amount at which the sell trade was cash settled under the CDP Clearing Rules.

In any other case, CDP will cash settle the loan with the Borrower by requiring that the Borrower pay CDP a cash settlement amount. The cash settlement amount will be the latest closing price of the securities as of the day before the day due for cash settlement.

Just to clarify, I mean in this technological age, which party the borrowers sell to, and the "route" of loaned shares should be traceable. The shares couldn't just disappear into thin air. Ultimately, wherever the loaned shares go, I believe CDP is still in control of the share register? I believe enforcement is possible but perhaps difficult ?

As ghchua mentioned, borrowers don't borrow shares to hold. They borrow shares to short sell in the market. The buyer to that transaction can then go on to sell the shares, and the buyer to this transaction can go on to sell the shares, so on and forth. You are right in the sense that the shares don't just disappear into thin air, but suppose we know that the shares are now in the hands of Person A (who have absolutely no idea that these are borrowed shares). What can we do? Force this person to return the shares back to you? That's not being fair to him as well right?

In reality, this problem won't happen if there's no suspension. Because the original borrower can just close his short position by buying the shares on-market. And if he fails to do so, CDP will do it for him. So I think we have to be clear that this is a very special situation that won't apply to most SBL cases.

To be blunt, the rules were already set when investors opted into the SBL programme to earn some extra dollars, and participants went in with their eyes open. CDP is merely acting on these rules. While we can say that this rule is unfair etc, it also doesn't sound right/fair to me that we want to change the rules only after we realized it's not in our favor.

I must  stress again - this is an unfortunate situation and most investors did not expect. Most people probably still have decent experience lending their shares out for some extra money. But I do think that CDP should clarify why it didn't terminate the loan when stock was suspended years ago, when it had the right to do so.

[brattzz]

CDP waits for instructions from SGX regulatory division on what to do... :O

[dreamybear]

Thanks Corgitator for your well articulated reply, I can better appreciate the intricacies of the issue. At the end of the day, there is still the same no. of issued shares, but in-between the shares can flow through multiple transactions via shorting, borrowing etc.

I do believe the SBL was conceived in the spirit of benefiting the participants and for the lenders, another potential source of income. In this case, some shareholders may end up losing more capital vs the interest income earned from the lending which somewhat defeats the purpose ? If the risk of potential(significant) capital losses in participating in SBL is emphasised, maybe lenders will think twice before enrolling in this program. I do agree this situation is rather unique and unexpected but at the same time, is there a clearly defined "criteria" for trading suspension / indefinite suspension for stocks in general ? As I mentioned earlier, perhaps then there should be more deliberation on how the current and future similar situations can be better handled.

------------------------
Securities Borrowing & Lending (Part 1/3) – What is Securities Borrowing and Lending (SBL) scheme?
https://www.youtube.com/watch?v=QRIlY80eq0A

[ghchua]

Hi dreamybear,

You can always appeal to CDP to do a off-market transfer of Best World shares to you at $1.36 per share if you can find sellers, to offset those shares that had been lent out and cash settled. I believe you might have a case here as you wish to continue to hold those shares.

[dreamybear]

Hi dreamybear,

You can always appeal to CDP to do a off-market transfer of Best World shares to you at $1.36 per share if you can find sellers, to offset those shares that had been lent out and cash settled. I believe you might have a case here as you wish to continue to hold those shares.

Wow, this is an interesting idea indeed. Thanks so much, ghchua. 

[dreamybear]

Thanks to all who helped in the discussion. Just an update for the knowledge of all - based on the fellow shareholders I know - our CDP shares have been returned before the settlement. 

There is a change in interest of a Director(HBC) which is related to share-lending arrangement. I am not sure whether there is any relation.
https://links.sgx.com/FileOpen/_BWI%20eF...eID=700754

Meanwhile, based on the MAS short position reporting, there r still some 24m shares being shorted.

In the meantime, the EAO timeline has been extended, in response to requests from certain shareholders. Hmmmm .....
https://links.sgx.com/FileOpen/2022%2002...eID=701724

Other news
1. Interestingly, the FY2021 results should have been out on 24 Feb 2022*, but appears to have been delayed. Only wondering ... could it be another set of good results which may "disincentivize" EAO acceptance hahaha ....
* https://bestworld.listedcompany.com/news...NX0M.1.pdf  (AR2020 pg 54)

2. Incorporation of a subsidy in Macau - good demand for its pdts ?
https://links.sgx.com/FileOpen/2022%2002...eID=703586

[¯|_(ツ)_/¯]

Equal Access Share Buy-back Offer - just ended with more than DOUBLE MAXIMUM buy-back amount of 54m shares

D2 increased their shares from 35% to 39%

https://links.sgx.com/FileOpen/_eFORM3V2...eID=706494

Gratitude! 

[CY09]

Whats interesting is its full year results

https://links.sgx.com/FileOpen/2022%2003...eID=705679

It delivered an excellent set of result, with rising margins due to scale, an EPS of 27 cents with a cash generation ability that matches 27 cents. In short it is now selling at 5 times P/E and 5 times of its free cashflow. On the contrary, SGX does not trust its accounts and shareholders have thrown in the towel at its low ball price of 1.36

There will be another round of equal access scheme next year and I wont be surprised another 10% or 20% of public float will disappear again. The 2Ds and the other management now have a 50-60+% stake in Best World, I wont be surprised to see another round of attrition and they then will hold much stake in a highly profitable and cash rich company.

I hope then they will be inclined to share the wealth as a large amount of dividends will go to their pockets in term of proportionality.

[¯|_(ツ)_/¯]

Good morning CY,
My thought:
1. EAO would have to be conducted so long as BWL is suspended.  It's only correct for those shareholders who wanted to exit - a chance to exit (irregardless of profit or loss).  I would encourage BWL to continue to provide EAO as frequent as possible. Without EAO, the situation for these group of shareholders would be jialat.

2. BWL results will continue to be good. No doubt in my mind. As for sharing it's profit/cash with shareholders, I doubt D2 would want to do it.  The preferred mode would be to use the profit/cash for EAO or prepare for the eventual de-listing (instead of borrowing from the bank).  It just take a bit longer (than borrowing from the bank) but it's a no-brainer to me.

3. BWL is a good company, for those who is vested, it's rather unfortunate that the condition imposed aka getting DS license in China is something that's impossible (for a long time - my guess).  Exactly like what a lot of valuebuddies says, investment is full of risks. Plus, in my own words, the success/outcome of an investment, depends primarily on your luck.

Wishing valuebuddies more luck and BWL more success.



Gratitude.

[CY09]

Hi,

Yes the equal access scheme is there and will be tabled as an item for the upcoming AGM. However, I am unsure if there will be massive votes for/against this resolution. It is obvious there are enough shares out there who wants to cash out of Best World, so they may fight for a wording that does not allow Best World to underprice them at 1.36. If there are sufficient "against", the EAO will not materialize.

It is no doubt a good company, but the structure is against minority investors. The controlling shareholders are contented with not giving dividends to shareholders. As seen by their remuneration package, they are content to each draw about $12 million in cash, for reference DBS Piyush is only earning $13.8 million. The salary drawn by the top 3 shareholders amounts to 20% of the company's profits and they have more than doubled their own pay since they stopped giving out dividends. And they have a controlling stake in Best World now

In a way, they have been able to enjoy the same amount of cash inflow by moving it from declaring as dividends to increasing their pay. Its a red flag