Forterra Trust (formerly: Treasury China Trust)

[Nick]

My biggest concern is whether Nan Fung will start to inject their China assets iinto Forterra and fund that through the issuance of more shares. I guess that scenario is mitigated by (1) currently there is little investor appetite for Forterra shares, (2) I am not sure whether a rights issue would be fully subscribed and (3) if Nan Fung sold its assets to Forterra in return for Forterra shares, that would, presumably, trigger a mandatory offer which I am not sure whether Nan Fung really wants. On the other hand, scenario 3 would allow Nan Fung to get hold of a a significant amount of Forterra shares at a large discount to NAV (if the shares were issued at today's price) and if the GO was not fully successful Nan Fung would then be left with a large share holding in Forterra at attractive prices compared to NAV which may suit them......

I could be wrong on this but here are my thoughts
If NF were to inject assets into FT in return for FT shares
1) Depending on the deal size, “the proposed asset acquisition” may need unit-holders approval (>50% majority vote would be required).
2) Unit-holders approval would also be needed (>50% majority vote would be required) for the issuance of new shares.
3) Due to conflict of interests, NF may not be eligible to vote
4) If the deal is deemed unfair to them by non-controlling unit-holders, they would vote against it.
5) The proposed acquisition would trigger a GO.

(vested)

Couldn't NF simply add a 'whitewash resolution' to the EGM resolutions to seek approval from unitholders to waive their right for a GO ? I believe LK has done it previously with First REIT.

[Boon]

My biggest concern is whether Nan Fung will start to inject their China assets iinto Forterra and fund that through the issuance of more shares. I guess that scenario is mitigated by (1) currently there is little investor appetite for Forterra shares, (2) I am not sure whether a rights issue would be fully subscribed and (3) if Nan Fung sold its assets to Forterra in return for Forterra shares, that would, presumably, trigger a mandatory offer which I am not sure whether Nan Fung really wants. On the other hand, scenario 3 would allow Nan Fung to get hold of a a significant amount of Forterra shares at a large discount to NAV (if the shares were issued at today's price) and if the GO was not fully successful Nan Fung would then be left with a large share holding in Forterra at attractive prices compared to NAV which may suit them......

I could be wrong on this but here are my thoughts
If NF were to inject assets into FT in return for FT shares
1) Depending on the deal size, “the proposed asset acquisition” may need unit-holders approval (>50% majority vote would be required).
2) Unit-holders approval would also be needed (>50% majority vote would be required) for the issuance of new shares.
3) Due to conflict of interests, NF may not be eligible to vote
4) If the deal is deemed unfair to them by non-controlling unit-holders, they would vote against it.
5) The proposed acquisition would trigger a GO.

(vested)

Couldn't NF simply add a 'whitewash resolution' to the EGM resolutions to seek approval from unitholders to waive their right for a GO ? I believe LK has done it previously with First REIT.

Hi Nick,

I think there are two key issues here for the “asset for shares deal” by NF

1) It would allow NF a so called backdoor approach to increasing their stakes in FT
2) It would trigger a GO

If I read it correctly, the main concern of “GreedandFear” is - the “asset for share swap deal” by NF might end up in them gaining more FT shares “cheaply” presumably at the expense of non-controlling unit-holders.

Yes, you are absolutely right - the GO issue could be overcome with Whitewash Waiver.

But the crux of the issue is - any “asset for share swap deal” if carried out, must be "fair”

If the deal is unfair,
- Non-controlling unit-holders would not vote in favor of the “asset acquisition” - if unit-holders” approvals are needed on this
- Non-controlling unit-holders would not vote in favor of “issuance of new shares”.
- Non-controlling unit-holders would not vote in favor of the “Whitewash Waiver”

(vested)

[GreedandFear]

[quote='GreedandFear' pid='80726' dateline='1398312957']
My biggest concern is whether Nan Fung will start to inject their China assets iinto Forterra and fund that through the issuance of more shares. I guess that scenario is mitigated by (1) currently there is little investor appetite for Forterra shares, (2) I am not sure whether a rights issue would be fully subscribed and (3) if Nan Fung sold its assets to Forterra in return for Forterra shares, that would, presumably, trigger a mandatory offer which I am not sure whether Nan Fung really wants. On the other hand, scenario 3 would allow Nan Fung to get hold of a a significant amount of Forterra shares at a large discount to NAV (if the shares were issued at today's price) and if the GO was not fully successful Nan Fung would then be left with a large share holding in Forterra at attractive prices compared to NAV which may suit them......

I could be wrong on this but here are my thoughts
If NF were to inject assets into FT in return for FT shares
1) Depending on the deal size, “the proposed asset acquisition” may need unit-holders approval (>50% majority vote would be required).
2) Unit-holders approval would also be needed (>50% majority vote would be required) for the issuance of new shares.
3) Due to conflict of interests, NF may not be eligible to vote
4) If the deal is deemed unfair to them by non-controlling unit-holders, they would vote against it.
5) The proposed acquisition would trigger a GO.

(vested)

Couldn't NF simply add a 'whitewash resolution' to the EGM resolutions to seek approval from unitholders to waive their right for a GO ? I believe LK has done it previously with First REIT.

Hi Nick,

I think there are two key issues here for the “asset for shares deal” by NF

1) It would allow NF a so called backdoor approach to increasing their stakes in FT
2) It would trigger a GO

If I read it correctly, the main concern of “GreedandFear” is - the “asset for share swap deal” by NF might end up in them gaining more FT shares “cheaply” presumably at the expense of non-controlling unit-holders.

Yes, you are absolutely right - the GO issue could be overcome with Whitewash Waiver.

But the crux of the issue is - any “asset for share swap deal” if carried out, must be "fair”

If the deal is unfair,
- Non-controlling unit-holders would not vote in favor of the “asset acquisition” - if unit-holders” approvals are needed on this
- Non-controlling unit-holders would not vote in favor of “issuance of new shares”.
- Non-controlling unit-holders would not vote in favor of the “Whitewash Waiver”

(vested)
[/quote
I haven't checked the shareholder resolutions on Forterra but typically, Singapore listed companies get an annual mandate to issue up to 50% new shares provided that no more than 20% can be done a a placement instead of a rights issue. Lets assume that Forterra issues 20% new shares at today's price of SGD 1.80 to Nan Fung in return for a Chinese real estate asset. Forterra's board will get an independent valuer to vouch that the purchase price is on-market (and it probably will be...) but because the value of the shares (according to Forterra's independent valuer) is really SGD 4.68, Nan Fung is getting a great deal to the detriment of other shareholders. Forterra can argue that (1) a new cash flow generating asset is good for the company, (2) it will help Forterra eventually resume dividend payments and (3) given current capex commitments, Forterra is not in a position to add more debt, hence funding the purchase via shares is legitimate. I suspect that the above scenario could play out without the need for any further shareholder approvals, provided it was limited to 20%. Of course, Forterra could also make a large asset purchase (from Nan Fung) and fund it through a combination a 20% share placement to Nan Fung and a rights offer for the balance. If Nan Fung chose to underwrite that rights offering (and the take up was limited), that could also be a scenario under which Nan Fung could significantly increase its shareholding on the cheap. As pointed out by yourself and Nick, that could trigger a GO which Nan Fung may or may not want.

I don't have any basis for thinking that Nan Fung would be unfriendly to other shareholders but it is a risk....

(Vested)

[Boon]

[quote='GreedandFear' pid='80726' dateline='1398312957']
My biggest concern is whether Nan Fung will start to inject their China assets iinto Forterra and fund that through the issuance of more shares. I guess that scenario is mitigated by (1) currently there is little investor appetite for Forterra shares, (2) I am not sure whether a rights issue would be fully subscribed and (3) if Nan Fung sold its assets to Forterra in return for Forterra shares, that would, presumably, trigger a mandatory offer which I am not sure whether Nan Fung really wants. On the other hand, scenario 3 would allow Nan Fung to get hold of a a significant amount of Forterra shares at a large discount to NAV (if the shares were issued at today's price) and if the GO was not fully successful Nan Fung would then be left with a large share holding in Forterra at attractive prices compared to NAV which may suit them......

I could be wrong on this but here are my thoughts
If NF were to inject assets into FT in return for FT shares
1) Depending on the deal size, “the proposed asset acquisition” may need unit-holders approval (>50% majority vote would be required).
2) Unit-holders approval would also be needed (>50% majority vote would be required) for the issuance of new shares.
3) Due to conflict of interests, NF may not be eligible to vote
4) If the deal is deemed unfair to them by non-controlling unit-holders, they would vote against it.
5) The proposed acquisition would trigger a GO.

(vested)

Couldn't NF simply add a 'whitewash resolution' to the EGM resolutions to seek approval from unitholders to waive their right for a GO ? I believe LK has done it previously with First REIT.

Hi Nick,

I think there are two key issues here for the “asset for shares deal” by NF

1) It would allow NF a so called backdoor approach to increasing their stakes in FT
2) It would trigger a GO

If I read it correctly, the main concern of “GreedandFear” is - the “asset for share swap deal” by NF might end up in them gaining more FT shares “cheaply” presumably at the expense of non-controlling unit-holders.

Yes, you are absolutely right - the GO issue could be overcome with Whitewash Waiver.

But the crux of the issue is - any “asset for share swap deal” if carried out, must be "fair”

If the deal is unfair,
- Non-controlling unit-holders would not vote in favor of the “asset acquisition” - if unit-holders” approvals are needed on this
- Non-controlling unit-holders would not vote in favor of “issuance of new shares”.
- Non-controlling unit-holders would not vote in favor of the “Whitewash Waiver”

(vested)
[/quote
I haven't checked the shareholder resolutions on Forterra but typically, Singapore listed companies get an annual mandate to issue up to 50% new shares provided that no more than 20% can be done a a placement instead of a rights issue. Lets assume that Forterra issues 20% new shares at today's price of SGD 1.80 to Nan Fung in return for a Chinese real estate asset. Forterra's board will get an independent valuer to vouch that the purchase price is on-market (and it probably will be...) but because the value of the shares (according to Forterra's independent valuer) is really SGD 4.68, Nan Fung is getting a great deal to the detriment of other shareholders. Forterra can argue that (1) a new cash flow generating asset is good for the company, (2) it will help Forterra eventually resume dividend payments and (3) given current capex commitments, Forterra is not in a position to add more debt, hence funding the purchase via shares is legitimate. I suspect that the above scenario could play out without the need for any further shareholder approvals, provided it was limited to 20%. Of course, Forterra could also make a large asset purchase (from Nan Fung) and fund it through a combination a 20% share placement to Nan Fung and a rights offer for the balance. If Nan Fung chose to underwrite that rights offering (and the take up was limited), that could also be a scenario under which Nan Fung could significantly increase its shareholding on the cheap. As pointed out by yourself and Nick, that could trigger a GO which Nan Fung may or may not want.

I don't have any basis for thinking that Nan Fung would be unfriendly to other shareholders but it is a risk....

(Vested)

Assuming
- NF is unfriendly towards non-controlling unit-holders
- FT issue 20% of new shares at SGD 1.80 ( = SGD 91 million) to acquire China asset from NF
- No further unit-holders approval would be required

NAV before = SGD 4.68 per unit
NAV after issuance of 20% new share = 4.68/1.2 + 91/(254 x 1.2) = 3.9 + 0.30 = SGD 4.2 = 0.9 x 4.68 (10% discount or dilution)

The effect of dilution is only 10%.
If NF does this, the “General Mandate or authority” empowering the Trustee Manager to issue new shares would be voted down or revoked by unit-holders in the next AGM.

In short, If NF chooses to “abuse” this authority, they could only do it once.

It is a risk – a 10% dilution risk on NAV to non-controlling unit-holders

(vested)

[HitandRun]

Boon-san

You could be interested in the following rules as copied from SGX listing manual:

Rule 906

(1) An issuer must obtain shareholder approval for any interested person transaction of a value equal to, or more than:—
(a) 5% of the group's latest audited net tangible assets; or
(b) 5% of the group's latest audited net tangible assets, when aggregated with other transactions entered into with the same interested person during the same financial year. However, a transaction which has been approved by shareholders, or is the subject of aggregation with another transaction that has been approved by shareholders, need not be included in any subsequent aggregation.

Rule 914

An interested person and any nominee of the interested person must abstain from voting on all resolutions to approve the sales or proposed sales to the interested persons.

[Boon]

Boon-san

You could be interested in the following rules as copied from SGX listing manual:

Rule 906

(1) An issuer must obtain shareholder approval for any interested person transaction of a value equal to, or more than:—
(a) 5% of the group's latest audited net tangible assets; or
(b) 5% of the group's latest audited net tangible assets, when aggregated with other transactions entered into with the same interested person during the same financial year. However, a transaction which has been approved by shareholders, or is the subject of aggregation with another transaction that has been approved by shareholders, need not be included in any subsequent aggregation.

Rule 914

An interested person and any nominee of the interested person must abstain from voting on all resolutions to approve the sales or proposed sales to the interested persons.

Thanks “HitandRun”

In summary, I think shareholder approvals would be required for:
1) “Interested Person Transaction” - pursuant to Rules 906(1)(a) and 906(1)(b) of the Listing Manual.
2) “Major Transaction” – pursuant to Chapter 10 of the Listing Manual
3) “Issuance of new shares”
4) “Whitewash Waiver” for GO

“Interested Person Transaction”
- If NF were to inject asset into FT, it is unlikely that the asset value would be less than 5% NTA of FT (=0.05 x 4.68 x 254 = SGD 59 million)
– What could NF possibly sell to FT for less than SGD 59 million these days?
– If the deal size is more than 5% of NTA, shareholder approval would be required.
– A SGD 59 million deal could only swap for 13% of FT shares at SGD 1.80 per unit ( equivalent to about 7% dilution on NAV)
– Case example: Sales of IMT-Group to UMS

“Major Transaction”
- Again, depending on the deal size, shareholder approval may be required if the proposed transaction constitute as “Major Transaction”
- Case example: sale of Central Plaza; Sale of IMT Group to UMS

“Issuance of New Shares”
- “GreedandFear” is right - the Management has the mandate to issue up to 20% new shares (= SGD 91 million at SGD 1.8 per unit) to existing unit-holders
- However, new shares issuance mandate needs unit-holders approval on yearly basis during each AGM – if there has been any abusive conduct on the part of NF to gain unfairly at the expense of non-controlling unit-holders, mandate would unlikely to be approved and renewed come the next AGM.
-
“Whitewash Waiver”
- “Asset for share swap” by NF would trigger a GO. Unless this is their intention, otherwise, unit-holders approval would be required for “whitewash waiver”

Final Thoughts:
- There are limits as to how much NF could “gain” at the detriment of non-controlling unit-holders by injecting asset into FT in return for new FT shares.
- To do it WITHOUT the requirement of any unit-holders approvals, NF needs to make a GO at the same time.
- To do it and not willing to make a GO at the same time, would involve seeking unit-holders approval for “Whitewash Waiver”.

(vested)

[Boon]

All 3 resolutions were passed at the AGM this morning

Interestingly, the votes for resolution 3 (New Shares Issuance Mandate) was passed with:

58.91% (80,603,133) for
41.09% (56,228,287) against

NF owns 29.98% (76,083,379 shares) of FT shares but it looks like they were the majority at the AGM.

Presumably NF must have voted in favor of the resolution while majority of the non-controlling unit-holders who were at the AGM had voted against this resolution.

Had more non-controlling unit-holders turned up for the AGM, the outcome of this poll result would probably be different.

http://media.corporate-ir.net/media_file...cement.pdf

(vested)

[HitandRun]

Interestingly, the votes for resolution 3 (New Shares Issuance Mandate) was passed with:

58.91% (80,603,133) for
41.09% (56,228,287) against

NF owns 29.98% (76,083,379 shares) of FT shares but it looks like they were the majority at the AGM.

Good broadside from MI.

NF should get the hint that they cannot chin chai push through a related party transaction.

[Boon]

FT has released 1Q2014 results - the results are within my expectations.

But the sudden drop in the levels of disclosure is definitely a surprise to me – Wondering if it still meets disclosure requirements? And Why NF is doing this?

Compare to previous results announcements, in the 1Q2014 results, there are:

1) No more Results Presentation slides
2) No photos
3) No graphics
4) No Executive Summary
5) No Highlights
6) No reporting on Occupancy and lease renewal
7) No reporting on the tenant-fit out progress of The Place Phase 1 (HQ1) and leasing commitment status.
8) No reporting on the construction progress of The Place phase 2 & 3 and leasing commitment status
9) No update on the launch dates of The Place Phase 1, 2 and 3 (HQ 1, 2 and 3)

Very strange indeed !

(vested)

[GreedandFear]

FT has released 1Q2014 results - the results are within my expectations.

But the sudden drop in the levels of disclosure is definitely a surprise to me – Wondering if it still meets disclosure requirements? And Why NF is doing this?

Compare to previous results announcements, in the 1Q2014 results, there are:

1) No more Results Presentation slides
2) No photos
3) No graphics
4) No Executive Summary
5) No Highlights
6) No reporting on Occupancy and lease renewal
7) No reporting on the tenant-fit out progress of The Place Phase 1 (HQ1) and leasing commitment status.
8) No reporting on the construction progress of The Place phase 2 & 3 and leasing commitment status
9) No update on the launch dates of The Place Phase 1, 2 and 3 (HQ 1, 2 and 3)

Very strange indeed !

(vested)

Executive Summary and Presentation are now posted on the Forterra Website. I don't know why they haven't been filed with SGX