Delisting

[weijian]

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.

Hi dreamybear,

For a start, the only guarantees in life are death and taxes. And most importantly, in investing I am not looking at guarantees but assurances.

You seemed to be looking for a golden bullet or some "optimized path". But there probably isn't any. One can only connect the dots forward. Many years ago, our now-successful towkays were taking risks, bulldozing their way through or finding new paths if the bulldoze didn't work. The long term is made up of a series of short term struggles, winning and staying in the game according to our temperament.

So why would this has anything to do with OPMI investing? Because end of the day, I am a better investor because I am a businessman. I am a better businessman because I am an investor.

[weijian]

Well, I guess the team setup to improve the local equity market, could suggest that Temasek make investments in Grab and SEA too (and then get them to secondary list here).

Software firm AvePoint said to weigh second listing in Singapore

AvePoint, which counts Singapore’s 65 Equity Partners among its investors, is working with advisers on a possible listing, the people said, asking not to be identified as the matter is private. The potential capital markets transaction could take place as early as in the next 12 months, the people said.

The company was founded in 2001 in New Jersey and now has over 21,000 customers in more than 100 countries, according to its website. It listed on the Nasdaq in 2021 and the following year invested S$100 million (US$76 million) in a new international research and development hub in Singapore.

AvePoint received an anchor investment from Temasek Holdings Pte-backed 65 Equity Partners in 2023.

https://www.businesstimes.com.sg/compani...-singapore

[dreamybear]

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.

I think d.o.g.'s post sums it up nicely. I think it makes sense for sensible buyers(whether controlling/OPMIs) to buy at the level where they can expect to make a profit.

So I guess, for privatization plays, OPMIs have to reverse engineer the "appropriate" entry price based on an estimated(probably more art than science) range of expected profit margin of the controlling buyer.

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https://www.valuebuddies.com/thread-64-p...#pid136631
"It should be obvious that the buyer of a company expects to make a profit, whether through extraction of cash from operations or from a future sale of the company. This means that if the buyer thinks the company is worth $1, they will NOT pay $1 because then they won't make any money.

Crudely speaking, in any M&A deal a buyer should aim to make at least 50% in order to allow for errors in valuation or mistakes in future operations. So for a company whose fair value is $1 the buyer would likely bid no higher than $0.67."

[weijian]

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.

I think d.o.g.'s post sums it up nicely. I think it makes sense for sensible buyers(whether controlling/OPMIs) to buy at the level where they can expect to make a profit.

So I guess, for privatization plays, OPMIs have to reverse engineer the "appropriate" entry price based on an estimated(probably more art than science) range of expected profit margin of the controlling buyer.

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

https://www.valuebuddies.com/thread-64-p...#pid136631
"It should be obvious that the buyer of a company expects to make a profit, whether through extraction of cash from operations or from a future sale of the company. This means that if the buyer thinks the company is worth $1, they will NOT pay $1 because then they won't make any money.

Crudely speaking, in any M&A deal a buyer should aim to make at least 50% in order to allow for errors in valuation or mistakes in future operations. So for a company whose fair value is $1 the buyer would likely bid no higher than $0.67."

hi dreamybear,

Unfortunately, market valuations are not static. The market is forward looking and when it smells a FV impairment, the BV discount will widen before the impairment is made at the end of the FY.

Frequently, when one buys at a "deep discount", it doesn't turn out to be much of a bargain as Mr Market is proven right later.

Therefore for privatization plays, IMHO it is not about valuations but about possibilities. Possibilities are made higher via catalysts/Mgt intention etc. I do have some "privatization plays" in my portfolio but I only bought them because of the "structure" and not because they are at "deep discount".

Will "deep discount" work? Sure it may and the deeper the discount, the higher the IRR. VB ghchua had also correctly pointed out that BV will grow over time and if (that is, if) the discount doesn't widen, the investment is in the green too. But what are the battling odds? Pretty low, IMHO. The only way to overcome those battling odds is to buy a big number of such stocks and have the temperament to wait. As folks who did not get rich after Grandma died, we must account for opportunity costs of waiting too.

[dreamybear]

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.

Hi dreamybear,

For a start, the only guarantees in life are death and taxes. And most importantly, in investing I am not looking at guarantees but assurances.

You seemed to be looking for a golden bullet or some "optimized path". But there probably isn't any. One can only connect the dots forward. Many years ago, our now-successful towkays were taking risks, bulldozing their way through or finding new paths if the bulldoze didn't work. The long term is made up of a series of short term struggles, winning and staying in the game according to our temperament.

So why would this has anything to do with OPMI investing? Because end of the day, I am a better investor because I am a businessman. I am a better businessman because I am an investor.

Anything whose outcome is uncertain can be considered taking a bet, and this includes investing, value investing. There are many more experienced and qualified VBs than me, I am probably some 10 years late or something, going by the post below. Better late than never, I suppose. 

Even if an investor strives to better his/her odds by experience, diligence(not saying these are unimportant) but how does it compare with the wider environment being conducive ? Having spoken with successful business people / property investors, one common theme is "last time was easier". The world/environment is just getting more complex, perhaps inevitable due to the nature of evolution.

So, the sooner one "made it"(collect enough winnings from successful bets) and move on, the better - make your millions before the odds get more and more unfavorable.

https://www.valuebuddies.com/thread-518-...ml#pid4299
" SLC81 is right by highlighting the word "odds" and odds is the key to differentiate what is a gamble and a good bet(value investing)."

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

Since the thread is on delisting, another invaluable post/thread :
https://www.valuebuddies.com/thread-218-...ml#pid1212

I guess the million dollar question is how to foresee the intention of the management in the realization of value for shareholders. I suppose it is betting ?

[weijian]

Even if an investor strives to better his/her odds by experience, diligence(not saying these are unimportant) but how does it compare with the wider environment being conducive ? Having spoken with successful business people / property investors, one common theme is "last time was easier". The world/environment is just getting more complex, perhaps inevitable due to the nature of evolution.

So, the sooner one "made it"(bet successfully) and move on, the better - make your millions before the odds get more and more unfavorable.

hi dreamybear,

It is only natural to feel the last million that has been made, will always be easier than the next million that hasn't been made.

Do we start looking for a pail when the sky start raining gold, OR do we get ready our pail and position before the sky rains gold?

"Last time was easier?" These successful people you talked to, were either giving you a perfunctory answer OR in good intention, they knew how hard their path (and how the odds were once stacked against them) and so they decided to give you the realist-bear answer.

Buffett made 99% of his wealth after the age of 65years old. None of us have his genius and temperament but that does suggest we should try to extend our life-way and run-way and then continue to dream.

P.S. I should stop here as it is getting out of topic!

[dreamybear]

Hmmm, different exchanges have different rules, I think a logical layman question is what considerations do stock exchanges look at when coming out with the rules, e.g. are there formulas, best practice guides from associations like CFA or something ?

Nevertheless, for our local mkt - from OPMI pt of view, would free float of XX%(around 25%?) AND held by at least XXX non-strategic shareholders + registry of shareholders available to shareholders be a sweet OPMI dream ? 

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

STRENGTHENING INVESTOR PROTECTION IN DELISTING SITUATIONS
https://governanceforstakeholders.com/wp...ations.pdf
"...  Looking at the other exchanges, Bursa and the Hong Kong Exchange require a free float of 25%. The Stock Exchange of Thailand sets a free float of at least 15%, to be held by at least 150 non-strategic shareholders. Japan requires a certain number of tradable shares, with JPY10 billion in tradeable market capitalisation, average trading volume, minimum number of shareholders and a “tradeable share ratio” of 35% or more. In the major North America exchanges, the free float requirements are based on the number of shares in public hands and the share price, which translate into a tradeable market capitalisation measure. London Stock Exchange recently reduced the free float level to 10% in a bid to attract listings – the implications of this regressive approach remain to be seen. 

Low free float requirements enable major shareholders to entrench themselves, thus generally leading to low interest from institutional investors, lower perceived governance and a lack of trading liquidity. We believe the current free float requirement of 10% should be reviewed. Shareholders need to have meaningful stakes to make their engagement worthwhile and controlling shareholders should be made less entrenched and be obligated to engage with shareholders...."

[CY09]

We can be strict to afford good protection to minorities but again, many rich families may turn to delisting to force the government/MAS's hands.

If you look at the "banking conglomerate" I had mentioned, the controlling power of its subsidaries are held by family members who then split their holdings across many affliate companies with a few stakes personally held by the individuals of the families. The family are "the holding company", and each of this subsidary can build up cash and be tight fisted in disbursing dividends. Market participants will be well aware of the moat, earnings potential of the subsidary companies, its just that they, being minorities, are not able to reap fully the benefits and can only rely on the annual dividends announced. It is only when there is a total breakdown among family members that others can then reap the benefits (Example is the Teo Family falling out and Superbowl)

Its difficult for a falling out among the family of the "controlling family" to happen. So i do think SGX Regco has to be empowered with a much larger and many sticks. I do think managing a free float of 75% is good but there is a possibility that controlling shareholders can split the holdings among affliate companies to maintain a facade. The amount of trading volume and no of minority shareholders have to be enforced concurrently to stop it.

I am all for a regulatory body to be stricter to this and enhance investor protection at the expense of many family run companies pondering the route of delisting. I prefer quality companies to be listed over quantity of companies who are just listed to exploit the public.

One thought i have is that if a company is suspended due to loss of a free float, a fine can be meted out that is charged per day and not merely suspend the shares and ask them to continue to pay only listing fee. Considerations can be done where the proceeds are used to pay for independent assessment of exit offers for the delisting, bi-annual townhall sessions to vote on delisting offers and a way for remaining proceeds to somehow benefit the minorities over controlling shareholder.

Why would i propose so? This is because if there is a fine to companies that are suspended, the controllling shareholders will feel the most pain. Since when the company is listed and not suspended, minority shareholders are already unable to unlock value. When it is suspended, its still the same to minorities. On the other hand for the majority shareholder, they feel the pain because they are losing the asset value of the company to "outsiders"

[weijian]

Hmmm, different exchanges have different rules, I think a logical layman question is what considerations do stock exchanges look at when coming out with the rules, e.g. are there formulas, best practice guides from associations like CFA or something ?

Nevertheless, for our local mkt - from OPMI pt of view, would free float of XX%(around 25%?) AND held by at least XXX non-strategic shareholders + registry of shareholders available to shareholders be a sweet OPMI dream ? 

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

STRENGTHENING INVESTOR PROTECTION IN DELISTING SITUATIONS
https://governanceforstakeholders.com/wp...ations.pdf
"...  Looking at the other exchanges, Bursa and the Hong Kong Exchange require a free float of 25%. The Stock Exchange of Thailand sets a free float of at least 15%, to be held by at least 150 non-strategic shareholders. Japan requires a certain number of tradable shares, with JPY10 billion in tradeable market capitalisation, average trading volume, minimum number of shareholders and a “tradeable share ratio” of 35% or more. In the major North America exchanges, the free float requirements are based on the number of shares in public hands and the share price, which translate into a tradeable market capitalisation measure. London Stock Exchange recently reduced the free float level to 10% in a bid to attract listings – the implications of this regressive approach remain to be seen. 

Low free float requirements enable major shareholders to entrench themselves, thus generally leading to low interest from institutional investors, lower perceived governance and a lack of trading liquidity. We believe the current free float requirement of 10% should be reviewed. Shareholders need to have meaningful stakes to make their engagement worthwhile and controlling shareholders should be made less entrenched and be obligated to engage with shareholders...."

I agree with CIP viewpoint in theory, ie. the odds are stacked against the OPMI. But in practice, I do not agree that protection has to be tilted to the end that they suggest.

To start with, capitalism is "not fair". Big companies use their size to squeeze out smaller competitors. Smaller competitors have to learn to avoid, survive and co-exist. And hope that the market gets bigger for everyone. If the rules to protect OPMIs get into "Big Daddy knows best" terrain, will it kill the animal spirits of the market permanently? We only earn the equity risk premium by taking the equity risk. The market doesn't care about one's entry price, whether those capital are "hard earned money" or one's status as a retiree depending on it.

IMHO, the changing of the Companies Act in 2023 to take away the CA loophole and requirement for "fair and reasonable" IFA opinion in 2019, had been big-step improvements. Based on what has happened in recent times, I hope the next protection would come from "more objectivity" from the IFA. Yes, valuation is subjective but maybe some sort of structure to be implemented so that IFA's methodology/independence is less variable than what it is now.

[ghchua]

Hi weijian,

I beg to differ with you here. What CIP had articulated is not an increase in protection for minorities, but rather improvements in the current safeguards due to contradiction in the rules and strict enforcement of rules by SGX Regco.

For example, the current GO delisting rule contradicts with the current free float rule that is in place, resulting in scenarios whereby minorities could be left with a suspended stock (due to insufficient free float) for a very long time. Do refer to the decision flow diagram on page 5 of the paper for more details. It can be seen that 3 out of the 4 potential scenarios (shaded in red) are not favourable.

Then we have the situation of 75% independent acceptance after the GO closes and stock is suspended. If the company did not restore its free float and the number of minorities are getting smaller and smaller with each subsequent GO that is being launched, how on earth is the company going to get that 75% independent acceptance even if each subsequent GOs launched are deemed fair and reasonable by the IFA? It is the case of the pie getting smaller and smaller with each GO and you still need 75% of the remaining pie to be delisted. SGX Regco must strictly enforce the free float rule after the first GO closes to to restore it and avoid this "recursive infinite loop".

Also, as articulated in the paper, the current arrangement "encourages" two stage delisting, whereby the issuer will pitch a low ball offer first (even if it is deemed not fair by the IFA) to get as much acceptance as possible, while hoping that the current free float rule will "threaten" minorities to tender their shares to avoid holding a suspended stock. After that, they will launch another offer (deemed fair and reasonable by the IFA) more 6 months later to take out the remaining minorities. As can be seen, it is not a case of IFA opinion that is important here, but rather the free float rule. Again, SGX Regco must strictly enforce the free float rule after the first GO closes to restore it and avoid two stage delisting.

I hope that you could read through the whole paper carefully and understand what the authors are trying to convey to us. This will hopefully give you a better understanding of the current limitations of the delisting rules.