Delisting

[dreamybear]

There have been discussions about IFA recommendations on locally listed stocks, it may be interesting to look at the IFA letters for other exchanges, e.g. HK listed L'Occitane. Are there any key differences ? if not, what conclusions can we draw from investing as minority shareholders in companies ?

https://www1.hkexnews.hk/listedco/listco...100127.pdf

[weijian]

There have been discussions about IFA recommendations on locally listed stocks, it may be interesting to look at the IFA letters for other exchanges, e.g. HK listed L'Occitane. Are there any key differences ? if not, what conclusions can we draw from investing as minority shareholders in companies ?

https://www1.hkexnews.hk/listedco/listco...100127.pdf

hi dreamybear,

It doesn't look too much different to me.

(1) Uses a list of comparable companies to select a metric and statistic for comparison (in this case P/E).

(2) Looks at the list of recent takeovers. So the more depressed the market is, the "better" the offer price looks.

(3) IFA stated that Target is an asset-light company in (1) to justify that they chose P/E over P/B as the metric. Then in (2), they forgot their justification in (1) and chose P/B so as to be able to use the "all" word below:

the premium represented by the Offer Price over the NAV per Share is higher than those of all Privatisation Precedents, we consider the Offer Price to be fair and reasonable. (page110)

As OPMIs, I reckon we have to adjust our play accordingly to how the rules are structured, not how we think the rules should be structured.

[CY09]

I agree with Weijian on this as investors who are small time, we cannot dictate how the rules are structured. It is choosing the playing field where the rules are in our favour.

Thus far in terms of the treatment of OPMIs, only the temasek companies have seemed to fare better except for the recent epsiode of Seatrium where Sembcorp marine is looking like a bad debt company taking all the negativites from SCI + Keppel Corp. Similarly, evaluations of takeover are compared from the a basket of bad apples where family run companies own a controlling stake and pay their family/friends high pay while sharing low amount of wealth as dividends (with the exception of Boustead)

It is entirely painful to know the rules and laws are not in favour of the minority in Singapore. This is why I am not in favour of investing in Singapore, except for REITs because they are forced to give 90%. But then again, we have seen sponsors who abuse this by injecting assets at high valuation price points into the REIT and act in favour of AUM as opposed to unitholders where a decline in assets (via asset sales) would have benefitted the company even more.

In a sense, I am fed up at how poorly things are structured for OPMIs in Singapore. On the contrary, HK companies seems to have better treatment for OPMIs. This is also probably why the IPO market in HK has flourished.

Singapore can change but the moment it changes, it makes many parent companies value a lot poorer and the wealth of the rich will be affected.

[dreamybear]

Thanks for the various comments, it triggered other thoughts in me :

Perspective on other side - controlling SH
Take for e.g. cash rich listed companies without the need for funding - if OPMIs do not directly contribute to the success of the company but are merely passive investors who ride on the mgmt's hardwork/company's success, are there compelling reasons to richly share the fortune with them(e.g. high dividend payout) ? and what if high dividend payout doesn't translate to high valuation for the shares ? Furthermore, OPMIs come and go(invest and divest the shares), how does the mgmt specifically identify and reward those "hardcore/loyal" OPMIs for stay with them thru' thick and thin/a very long time ? 

Is it natural for mgmt to think this way ? Is the "solution" privatization ? Do all the "think in decades/buy for long term", "buying businesses not stocks", "mgmt working for me, shareholder", "good financial track record e.g. cash flow, dividend payout", etc, apply to the minority OPMIs without decision making power/influence? 

So, at the end of the day, are OPMIs simply making calculated BETS when "value" investing and if so, is it realistic for the OPMIs to become 賭神 achieve reasonably consistent elevated win rates as they play the game longer, given the structural heavy odds/many uncontrollable variables ? Can the amount of money made via "value" investing exceed the alternatives(e.g. investing in S&P index, employment) ? Do OPMIs do "value" investing for other purposes(e.g. passion, keeping themselves active/occupied) rather than making money in the most efficient/effective way ?

[CY09]

When a company IPOs at the start of its stock listing lifecycle, investors on the other side are giving capital in hopes of sharing with the fruits of labour.

However, in Singapore's case, often capital is raised, the company grows but the grown up company does not share wealth with minorities. Alternatively, assets are injected in at expensive valuations with investors not getting returns on capital (like APTT). It becomes a disastrous relationship where investors receive little fruits for the capital they have intially given. The result is, future IPO valuations have to be attractive which means very low P/E or P/B or P/S ratios, as a result new companies IPO to be give up listing here.

In a sense, it is because a generation of towkays took advantage of listing with controlling shareholder status, treated minorities poorly that we are where we are now.

In US's case, the history of large corporates seems that they return capital to shareholders via share buyback or dividends. In USA, dividends are lesser used due to taxes

It also did not help from Singapore's public's point of view, alternative asset classes such as property and crypto outperformed Singapore stocks because no one wants to invest in SGX-listed companies because of the poor treatment to minorities. We do have companies with better valuation and they treat OPMIs better. But to Towkays with controlling status, the question is if it is better to force minorities to give up and enjoy the entire fruits of the labour (like Best World or LTC) or share in the fruits of the labour.

For investors of Singapore markets, it does seem to be a mentality that we have to hope for a delisting but the value of the offer will be a discount to the sum of all assets.

[weijian]

family run companies own a controlling stake and pay their family/friends high pay while sharing low amount of wealth as dividends (with the exception of Boustead)

hi CY09,

You sound like BSL is the only Towkay with a sharing attitude. I look at my own SGX-listed investments and there are definitely plenty (with decent businesses) that are more than willing to share with OPMIs - whether is it in terms of special dividends, capital reductions or spin-offs.

Putting sharing attitude aside, the more important factor is whether the OPMI has positioned themselves correctly or not:

Does the controlling shareholder needs large sums of money? Whether is it paying back certain loans (especially after a failed takeover) or personal vanity projects? For example. many years ago. CEO Andy Luong of UMS had a personal interest in restoring old architectural buildings, an expensive habit where his million dollar salary couldn't support as well.

Does the controlling shareholder has extended family or business partner whom can only benefit economically from dividends?

Does the controlling shareholder need to pay dividends from the child upwards to the ultimate parent?

[ghchua]

Singapore can change but the moment it changes, it makes many parent companies value a lot poorer and the wealth of the rich will be affected.

Hi CY09,

I don't understand your statement above. How would the wealth of the rich be affected with better treatment of OPMIs? In fact, if the share price of their listed companies increase due to better changes, their wealth would also increase as a controlling shareholder isn't it? As a controlling shareholder, why I want to see my listed company valuation getting more and more depressed? My listed shares will be worth much lesser.

In the end, everyone benefits from better corporate governance, in terms of valuation and reputation of the controlling shareholders as well.

[CY09]

Hi ghchua,

I'm considering of the perspective of towkays who want the wealth and power to remain within their family. If Singapore forces better corporate governance in the form of treating opmi better, a leakage of wealth can occur

Let's use the example of a banking conglomerate with businesses in industrial and property listed subsidiaries. The family can give a low payout ratio while their property arm makes tremendous profits. Investors will probably know the key value is in the parent because wealth is held tightly at subsidiary level.

Another example is that a real estate company with many smaller REIT subsidiaries, investors know that the parent will always inject assets into the child at good valuation. Meanwhile even in good times the child REIT will pay good fees to the parent company at the detriment of the child unit holder. Knowing this act, investor will accord good valuation to the parent. However if the child REIT subsidiaries are now forced to behave well in corporate governance such as refusing the sale of assets from the parent, investors may value the parent at lower valuation ratios

These hypothetical examples of poor corporate governance makes the value proposition of the parent company attractive and usually the parent company is tightly held by family tycoons in terms of no of shares

[dreamybear]

I look at my own SGX-listed investments and there are definitely plenty (with decent businesses) that are more than willing to share with OPMIs - whether is it in terms of special dividends, capital reductions or spin-offs.

Putting sharing attitude aside, the more important factor is whether the OPMI has positioned themselves correctly or not:

Does the controlling shareholder needs large sums of money? Whether is it paying back certain loans (especially after a failed takeover) or personal vanity projects? For example. many years ago. CEO Andy Luong of UMS had a personal interest in restoring old architectural buildings, an expensive habit where his million dollar salary couldn't support as well.

Does the controlling shareholder has extended family or business partner whom can only benefit economically from dividends?

Is the controlling shareholder need to pay dividends from the child upwards to the ultimate parent?

Yes, it's heartening that there are many good ones but at the same time, it's possible that sharing happens until it doesn't - a good historical track record isn't a guarantee.

If we look at the Corporate Governance section in Annual Reports, we always see "act in the best interest of the company". I am not sure how does OPMIs fit into the picture. As "outsiders without influence", we do not have inside information nor complete understanding of a business, and business/macro environment can be volatile. On what basis are we to say whether decisions(e.g. capital allocation) are in the best interests of the company ? I believe ideally, people will always strive for a win-win situation, but in an imperfect world, is it possible that certain decisions in the best interests of the company are at the same time in bad interests of OPMIs ? What recourse do OPMIs have then ?

Some possible investment strategies that come to mind are sizing/diversification. But then some questions follow, e.g. are there so many potential life-changing stock ideas to diversify into, does OPMIs have that much capital to make meaningful amt of investments in each stock idea, etc ? Perhaps OPMIs better learn to make (ideally already made) millions before grand... opportunities die.

[ghchua]

Let's use the example of a banking conglomerate with businesses in industrial and property listed subsidiaries. The family can give a low payout ratio while their property arm makes tremendous profits. Investors will probably know the key value is in the parent because wealth is held tightly at subsidiary level.

I see it differently from you. At the holding company level, investors will always be demanding a "conglomerate or holding company" discount. If wealth don't filter up to the holding company via dividends from listed subsidiaries, it is unlikely that the holding company will be able to give out decent dividends to their minority shareholders as well. Then why would investors be "rewarding" the holding company with higher valuation? Just because wealth is tightly held at subsidiary level that could not be unlocked? I don't think so.

Conglomerates that did well mostly because they have done unlocking of value at subsidiaries level and gave out cash dividends to their shareholders. It cannot be both ways. Either you unlock to realize value to the market or stay put and trade at a discount. Ultimately, things have to start at subsidiary level and the whole group will benefit.