Great Eastern Holding

[ghchua]

What is the point of being the largest shareholders especially when it crossed 75% with no large shareholder in sight and not able to direct and make decision?

What is the point of buying  additional interest then sell additional share?

Hi donmihaihai,

On your first question, of course, the controlling shareholder can direct and make decisions. But the problem here is this issue is regulatory. You have to meet the free float requirement to remain listed on SGX. If not, SGX can direct you to delist and even if you are the controlling shareholder, you have no say on this.

On your second question, again, it is regulatory. To meet free float requirement to remain listed. And a listed company board should preferably make up of a majority of independent directors, and that is where the influence of majority shareholder is diluted. Decisions should be made with the duty to all shareholders in mind, and not only the controlling shareholder.

[weijian]

So, the inevitable has occurred. Will the Boustead Spore-BP situation replay itself? Or will GEH BOD take things into their own hands to restore free float via a share placement?

OCBC garners over 90% of Great Eastern’s shares; trading in insurer to be suspended after offer closes

As the number of the insurer’s shares held by the public is now below 10%, the counter will be suspended from trading after the offer closes on Jul 12

https://www.businesstimes.com.sg/compani...fer-closes

[gzbkel]

So I guess the two possible scenarios are:
- OCBC gives a better exit offer that is both fair and reasonable (which they say they will not do)
- A short period of suspension after which free float is restored

Can anyone think of cases where a company stays suspended for years due to lack of free float? (I can't think of any)

[weijian]

So I guess the two possible scenarios are:
- OCBC gives a better exit offer that is both fair and reasonable (which they say they will not do)
- A short period of suspension after which free float is restored

Can anyone think of cases where a company stays suspended for years due to lack of free float? (I can't think of any)

hi gzbkel,

Actually, the next milestone is whether OCBC can garner >90% of shares it didn't own when it launched the offer, ie. 0.9*11.56 ~ 10.4%. In other words, it needs to own 88.44+10.4 = 98.84% by 12th July 2024 (offer closing date), so that it can compulsory acquire the remaining shares (1.16%) regardless of IFA's opinion to delist GEH. While, this is not probable but it is still a possible scenario.

The more probable scenario is that the condition for compulsory acquisition is not met and GEH is suspended after 12th July 2024. At this point, it will be Boustead Spore-Boustead Projects dejavu, where SGX Regco will ask GEH to "restore free float". Let's say OCBC garners 95% of votes, then either OCBC has to sell out >5% of its existing own shares OR GEH has to place out ~6% of new shares OR a combination of both, to get OCBC's ownership to <90%. If this does not happen within the next 3-6months, then SGX Regco will direct GEH to delist itself.

The 1st scenario (a new offer that is fair and reasonable to allow a company to delist) is at least not possible in the next 6 months after offer close (12th July 2024).

[gzbkel]

Hi weijian, thank you for the comprehensive answer.
What do you think of OCBC/GEH's motivation regarding whether to restore the free float or to delist?

The advantage of delisting is less work since no need to conform to all the listing rules, and the disagreement with minority shareholders will get less attention.
The disadvantage is that they can't raise capital from the public, but they may not be interested anyway due to the depressed stock price.

Is there any kind of reputational damage in not complying with SGX Regco's request to restore free float and cause a forced delisting?

[specuvestor]

Just to chime in that GE is likely going to be an unlisted public company with more than 500 shareholders. It's quite obvious what OCBC is trying to do all these years

Those holding on post delisting is basically hoping to have another CK Tang, problem is the time line as it could be 12 months or 12 years. For context the 1st privatisation price was $0.42 on 29 Oct 2003; 2nd attempt on Dec 2006 was $0.65; 3rd attempt on 8 May 2009 was $0.83
https://singaporepropertyhighlights.word...sh-carrot/

[weijian]

hi gzbkel,

OCBC has stated their motivation for the VGO when it was announced on 10th May 2024 and I re-produce it again below in italics (bold emphasis mine):

The Offer is expected to be earnings accretive to the Offeror. GEH provides diversification to the Offeror’s earnings base to deliver balanced earnings growth through economic cycles. The GEH Group has contributed an average of about SGD700 million annually in net profit to the Offeror over the past ten years, which translates to an average of about 15 per cent. of the Offeror’s yearly net profit over this period.

The Offer presents an opportunity for the Offeror to deploy its capital to generate greater returns for its shareholders. By increasing its investment in GEH, the Offeror can further capture the benefits from ongoing synergies and have a greater share of GEH’s value.

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

So OCBC's motivation is pure economics - They want to acquire as much as possible, shares that are accretive to their own earnings. As such, we could reasonably conclude the below:

1. GEH's listing status or free float is not part of their consideration.
2. GEH placing out new shares to 3rd parties to restore free float go against their motivation (since it dilutes OCBC's share of EPS).
3. OCBC placing out acquired shares to 3rd parties to restore free float go against their motivation (since acquired shares are accretive to OCBC's own earnings).

Based on OCBC's FY23 results, its interest income margin is ~5% and if we assume it is excess capital that OCBC is using (where interest expense is zero), then I guess OCBC cannot pay GEH minorities beyond P/E~20 to maintain "accretive earnings" to themselves.

Based on what happened at Boustead Projects, SGX Regco will issue a NOC (notice of compliance) to GEH/OCBC to do the necessary to restore free float. If they do not comply, they will breach SGX listing rules. Enforcement of listing rule breaches could be anything from public reprimand to directing the resignation of responsible directors to fines.

[dreamybear]

So I guess the two possible scenarios are:
- OCBC gives a better exit offer that is both fair and reasonable (which they say they will not do)
- A short period of suspension after which free float is restored

Can anyone think of cases where a company stays suspended for years due to lack of free float? (I can't think of any)

There is an article which describes the scenarios (helps to save OPMIs' brainpower !) 
.....
Scenario 1: Offeror fails to get 75 per cent of shares they did not already own
Scenario 2: Offeror gets at least 75 per cent but less than 90 per cent of shares they did not already own
Scenario 3: Offeror gets 90 per cent of shares they did not already own

Magic number: 97.17%

.......

Why OCBC’s offer for Great Eastern may hinge on two key shareholders
https://www.businesstimes.com.sg/compani...areholders

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

As reiterated in the update of free float doc, the Offeror intends to seek a delisting. I would think the course of action(intention) is clear.
https://links.sgx.com/FileOpen/GEH%20Upd...eID=807683

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

Further reading for those interested : 
Great Eastern shareholders who hold out on OCBC offer could face long wait for next exit
https://www.straitstimes.com/business/gr...-next-exit

[dreamybear]

I suppose the story has not ended, since there is another 3 month period for acceptance.

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

OCBC garners 93.52% of Great Eastern’s shares at offer close, falls short of compulsory acquisition threshold
https://www.businesstimes.com.sg/compani...-threshold
"However, existing GEH shareholders who have yet to accept OCBC’s offer can still do so, as the bank and its concert parties hold more than 90 per cent of the insurer’s shares.

A notice will be sent to these shareholders by Jul 24, following which a three-month period in which they can exercise the right to encash their shares will kick in."

[weijian]

After those consecutive offers in just as many years, can't blame minorities for thinking that the future is bright. On hindsight, minorities were treated to a horror show as 1.5x EV became 0.5x EV in the next 18 years. Of course, past performance is not an indication of the future and so anyone's guess how this 0.7x EV price will turn out in the future.

Hi weijian,

I have no crystal ball to predict how the market will rate GEH going forward if it continues to be listed after the offer closes. But what is quite certain is that GEH had came out with a better dividend policy since last year. So, are you going to forgo a 4+%pa dividend yielder? Granted that the market had rated down GEH in terms of EV multiples since the last offer, but the relevant question should be, will GEH's EV continue to grow going forward, as it had been since the last offer?

Focus on the fundamentals of the company, rather than what the stock market is doing.

A higher dividend of 45cents, which will be maintained unless circumstances change. Words like "optimizing capital structure" and "enhancing ROE" are words that OPMIs like to hear.

GEH's fundamentals have improved as VB ghchua astutely mentioned previously. And with the yield curve still negative (abeit less negative than prior 2 years), there is still a lot of potential moving forward if it moves in the favorable direction. But IMHO, the biggest positives for the OPMI, are still the changes in "structure" as witnessed in recent times.

GREAT EASTERN REPORTS 1H-24 FINANCIAL RESULTS

Group’s Profit Attributable to Shareholders registered an increase of 34% over 1H-24, driven by higher profit from insurance business and favourable investment performance in shareholders’ fund.

In the first half of 2024, the Group has taken steps to optimise its capital and funding structure through issuance of subordinated and medium term notes in both Singapore and Malaysia by its subsidiaries. This further enhanced its return on equity.

The Board of Directors has declared an interim one-tier tax exempt dividend of 45 cents per ordinary share, to be paid on 29 August 2024. This represents an increase of 12.5% from the previous dividend payout, which is consistent with the Company’s practice of paying progressive dividends in line with sustainable profit trends. Barring unforeseen circumstances, the Company aims to maintain each dividend amount to be no lower than the preceding one.

GEH 1H24 PR:
https://links.sgx.com/FileOpen/20240731%...eID=813579