Best World

[dreamybear]

In my view, it is not an OPMI shareholder friendly company.

I have written before among the executives hired in SGX listed companies, the two co founders have the second and third highest pay in Singapore, right after DBS CEO piyush. They are paid higher than the executives of Wilmar, OCBC, UOB despite raking in a small % of these companies profits.

https://investmoolah.blogspot.com/2022/0...-ceos.html

Companies that are (i) OPMI unfriendly and (ii) founders own a large % of shareholdings are difficult to value because activist investors need tremendous efforts to buy a significant stake.

All the best in trying to effect a change for OPMI of best world.

My view is that the only way to help is that OPMI band together to vote out the independent directors (IDs) during AGM as it sends a message and Best World will have to go to full lengths to continously find IDs to meet listing requirements. There are a few IDs who work for OPMIs interest, such as at International Cement and Unionsteel; but unfortunately these IDs do not hold many ID posts

Thanks for the compilation. 

Well, looking at the questions in the Q&A, I am inclined to believe that shareholders are feeling aggrieved.
https://links.sgx.com/FileOpen/BWIL%20AG...eID=760716 
" Management needs to clearly layout use of cash for buyback and dividends and not give general answers..... intend to help represent minority shareholders' interest moving forward? .... So, I am afraid your answer about hoarding cash is not satisfactory...."

Suspension aside, BW hasn't been paying dividends for some time while at the same time, the remuneration of some key personnel is arguably on the high side. 

Interestingly, I came across a SIAS webpage which mentions something known as the "oppression of the minority shareholders". I am not exactly clear how it works in a real-life example; wld be grateful if any VB can advise.

I believe companies like Penguin, Challenger, Lian Beng which have tried privatizations in the past did not stop paying dividends before trying again. Even Boustead Projects which failed to privatise and currently suspended, declared a dividend just last month !

As such, it seems to me that BW's case is rather peculiar(and of course, sad). Hope to find out from more experienced VBs whether there are other instances where a SGX listed company(consumer retail type bizness) with a good track record of profitability and strong financials not returning capital to shareholders e.g. dividends or SBB.

I do learn from this whole episode that OPMI are too "fragmented".

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https://sias.org.sg/qa/if-a-company-has-...olders-do/
"....There is also Singapore case law to support the position that should majority shareholders consistently refuse to declare dividends when profits are available (particularly if the majority could be shown to have remunerated themselves only in another way), this may amount to oppression of the minority shareholders for which the minority shareholders may choose to seek redress under our Companies Act. For instance, such redress may be available where a majority shareholder, who is also a director, sanctions the payment to himself of substantial director’s fee, which deprives minority shareholders from receiving returns on their shareholding in the form of dividends. Note that insofar as we aware, such an argument has yet to be successfully tested in the context of publicly listed companies...."

Lian Beng
https://www.dividends.sg/view/L03

Challenger
https://www.dividends.sg/view/573

Penguin
https://www.dividends.sg/view/BTM

Boustead Projects
https://www.dividends.sg/view/AVM

Best World
https://www.dividends.sg/view/CGN

[weijian]

I believe companies like Penguin, Challenger, Lian Beng which have tried privatizations in the past did not stop paying dividends before trying again. Even Boustead Projects which failed to privatise and currently suspended, declared a dividend just last month !

Hi dreamybear,

In general, it is highly probable those companies you mentioned, are paying dividends, precisely because they have tried privatization. Normally, the Offerer uses a bridging loan facility to have the resources to do a takeover. They subsequently will need to repay the loan and sometimes, they intend to use the cash in the company to do so. So when that is their intention, whether the takeover succeed or not, they have to declare a dividend to extract the cash out. If the takeover wasn't successful, the remaining OPMI gets to enjoy the dividend payment as well. Of course some of the companies you mentioned did actually suspend the immediate FY dividend but as far as I remember, all of them resumed their dividends (and sometimes more) in subsequent FYs.

Boustead Projects is a clear example because for parent Boustead Spore to pay its shareholders, BP been the biggest profit contributor, has to declare a dividend to allow parent to "fulfill its obligations".

End of the day, this all goes back to how the OPMI has to position themselves to benefit from the SSH's actions/intentions, ie. the structure in specuvestor's asset/business/structure framework.

[dreamybear]

Hi dreamybear,

In general, it is highly probable those companies you mentioned, are paying dividends, precisely because they have tried privatization. Normally, the Offerer uses a bridging loan facility to have the resources to do a takeover. They subsequently will need to repay the loan and sometimes, they intend to use the cash in the company to do so. So when that is their intention, whether the takeover succeed or not, they have to declare a dividend to extract the cash out. If the takeover wasn't successful, the remaining OPMI gets to enjoy the dividend payment as well. Of course some of the companies you mentioned did actually suspend the immediate FY dividend but as far as I remember, all of them resumed their dividends (and sometimes more) in subsequent FYs.

Boustead Projects is a clear example because for parent Boustead Spore to pay its shareholders, BP been the biggest profit contributor, has to declare a dividend to allow parent to "fulfill its obligations".

End of the day, this all goes back to how the OPMI has to position themselves to benefit from the SSH's actions/intentions, ie. the structure in specuvestor's asset/business/structure framework.

Thanks for your reply.

Most of the investment literature(finfluencers/youtube/books, etc) in the personal finance/investment seem to focus more on the "asset/business" side of the framework e.g. financial ratios, moats, competition, etc and less so on the "structure". Maybe a good idea for specuvestor to write an investment book with special emphasis on the "structure" component. 

I do wonder whether the structure portion might take on a more "prominent" role here, perhaps with the spate of privatizations ? Incidentally, I guess it also doesn't hurt to start developing specialized skills to spot potential privatization candidates.

Speaking about the "role" of dividends in privatizations, perhaps let me approach the question from another angle - does it make sense for companies to withhold capital returns to shareholders in preparation for privatization?  

Let's use a pure hypothetical example for discussion's sake :
Company A's controlling shareholder Boss A plans to privatize Company A in a few years. So Boss A comes out with a plan : start to reduce or suspend dividends and instead install a high remuneration for himself/herself to accumulate money for the privatization base capital. 

With very little / no dividends, share price of Company A remains depressed for a prolong period which makes it easier to privatize, e.g. don't need a high offer price for it to be fair and reasonable(1/3/6/12 months comparison, etc), little investor interest leading to little trading volume, little/no dividends for past X years which the IFA can point out that shareholders can get a better return elsewhere, etc. 

After gaining control of Company A, Boss A can declare as much dividends as he wants to himself, to pay off the bridging loan.

Now, of course, all these is exaggerated and more suited to a TV drama regarding some random twisted weirdo coming out with a sinister plan to short his/her own company stock to privatize. 

Back to the real world, from the perspective of a retail investor, aside from our own judgement of character, how/where do we seek to understand the various regulatory "check and balance", also considering the fact that OPMI do not have access to the same level of information as the directors  ?

[specuvestor]

Unfortunately I am not very good at captivating writing

For structure there are mainly 2 perspective: regulatory / tax reason and 2ndly SSH purpose

We can look at ourselves why we use structure personally. A margin account is a simple structure with broker having the title to the asset while we get leverage and ease of access say overseas market. Or structured deposit or CFD. Or how we structure for trust or estate planning. It does nothing to the shares we own underlying.

I think Dreamybear's scenario is not hypothetical at all There are also many who follow the SSH to privatisation cause they know the SSH will extract val;ue after privatisation. Problem is 1) it is a waiting game 2) trusting the SSH will not come up with more pattern to extract value just for himself

The bridging loan / LBO makes a lot of sense to those high cash vs market cap companies... usually they can privatise almost for zero cashflow to the SSH.

In short, management / SSH quality not only in terms of business but also integrity is important to have a rough idea what they are trying to do with the company. But here lies the conundrum catch 22: these companies are undervalued for a reason, well managed or shareholder friendly companies generally dont trade below book (except working capital heavy sectors like real estate)

[CY09]

Hi dreamybear to your question of: "Hope to find out from more experienced VBs whether there are other instances where a SGX listed company(consumer retail type bizness) with a good track record of profitability and strong financials not returning capital to shareholders e.g. dividends or SBB."

There are no company that was as extreme as Best World. However, there were many which gave a very small % of their profits as dividends/SSB and gave their family member executives large pay.

They are: Hong Fok, Lion Teck Chiang, Sing Holdings

2 of the 3 are still listed and are still up to the same antics

[dreamybear]

BW might be a wonderful business to buy (controlling stake) given its earnings prowess / strong financials but might not be so as a minority investor....

Perhaps it might help a little if BW can organize regular results briefing to engage with shareholders moving fwd ?

公道自在人心; 人在做,天在看 ...

------------------------

NOT THE BEST WORLD FOR SHAREHOLDERS
https://governanceforstakeholders.com/20...reholders/
"...Ms Hoan’s pay would put her ahead of the CEO of OCBC... 

Best World’s other founder, Ms Doreen Tan, is the co-chairman and president of the company. In FY2022, she was paid in exactly the same remuneration range of $12.5 to $12.75 million as Ms Hoan....

If we compare Ms Hoan’s remuneration with the remuneration of the ten largest cosmetics companies in the world (arguably an appropriate peer group in terms of industry), she does not do too badly either....  

Coming back from what is akin to a near-death experience, and paying such generous remuneration while giving nothing to minority shareholders, just does not seem right...."


https://www.investingnote.com/posts/2658429
"This is definitely not the right way to treat shareholders who stood by u during the most difficult times. Dividend stopped, Shareprices tanked, but remunerations n pay packages continue to climb. So what performance are u talking about here?....
------------------------

For those interested to know more about MLM (BW’s distributor featured) :

MLMs: Business Opportunity Or A Scam? | Talking Point | Full Episode 31 Jul 2023
https://www.youtube.com/watch?v=9bSV4HbpKfw

[weijian]

@dreamybear,

Thanks for sharing the CNA interview, was an eye opener for me. It seems the 80-20 rule is everywhere. Also Charlie Munger's incentives come to mind. I think BW has a great business, especially if it has survived and then strived for many years. The passage of time has proven that its products are value add and its workforce well equipped/incentivized to sell them.

P.S. I have edited the "cut/paste" message from InvestingNote in your post to remove some very subjective judgements that could be negatively construed by those whom are referred to.

[dreamybear]

@dreamybear,

Thanks for sharing the CNA interview, was an eye opener for me. It seems the 80-20 rule is everywhere. Also Charlie Munger's incentives come to mind. I think BW has a great business, especially if it has survived and then strived for many years. The passage of time has proven that its products are value add and its workforce well equipped/incentivized to sell them.

P.S. I have edited the "cut/paste" message from InvestingNote in your post to remove some very subjective judgements that could be negatively construed by those whom are referred to.

Sure weijian, no worries, I understand. It is never my intention to get into any issues, life is already hard enuff for me as it is. *no pun intended*

Actually, it makes me even more puzzled - since BW has a great bizness, why go to such extreme ? I am not familiar whether BW pays its employees/distributors above mkt rates, if not, I wonder how they will feel about the pay scale of the executives. Furthermore, what if employees/distributors/business associates are also BW shareholders ? How wld they feel ? WB has also spoken about reputation. 

Moving to another topic, if I am not wrong, BW insider ownership is some 50-60%, I had always thought substantial insider ownership is generally good. So what went wrong in this case ? 

I can't help but think there are some parts of the puzzle missing ....

-------------------

What Is a Good Percentage of Insider Ownership?
https://valueofstocks.com/2023/01/03/goo...ownership/

[CY09]

Its simple. When you own 50-60% stake, you are the controlling shareholder of a company. There is very little obstacle for you to do whatever you want in the company even if it is unethically wrong (as long as it does not break any law)

OPMI are at your mercy. In the case of BW, it is generating such good profits/cashflow why would I want to share it with OPMIs. What i can do is slowly strangle them out of their holdings while i take a good pay out of it. This is what happened to a few other companies where the controlling shareholder is in the management seat and have a low likelihood of being ousted.

[weijian]

Sure weijian, no worries, I understand. It is never my intention to get into any issues, life is already hard enuff for me as it is. *no pun intended*

Actually, it makes me even more puzzled - since BW has a great bizness, why go to such extreme ? I am not familiar whether BW pays its employees/distributors above mkt rates, if not, I wonder how they will feel about the pay scale of the executives. Furthermore, what if employees/distributors/business associates are also BW shareholders ? How wld they feel ? WB has also spoken about reputation. 

Moving to another topic, if I am not wrong, BW insider ownership is some 50-60%, I had always thought substantial insider ownership is generally good. So what went wrong in this case ? 

I can't help but think there are some parts of the puzzle missing ....

-------------------

What Is a Good Percentage of Insider Ownership?
https://valueofstocks.com/2023/01/03/goo...ownership/

Hi dreamybear,

Looking only at substantial ownership without considering other factors, is like a blind man touching just 1 part of an elephant, isn't it? In investing, there are no absolutes and one has to be the blind man who bothers to touch many different parts to reach a reasonable conclusion.

IMHO, I do not think anything in the puzzle is missing. The results/actions that we see, speaks for itself. So there is no need to question the results, because it probably reflects the truth. The lady been interviewed says she has a 5 figure monthly take-home salary, almost 10x from her full time job. I am sure she is a competent lady who works much harder than OPMIs like us think we do. So, we know where the true incentives lie, isn't it?

And who is getting paid more? --> Working for the 3 executive directors, OR the 3 executive directors working for you?