Boustead Projects

[weijian]

hi ghchua,

Thanks a lot. I see this difference between the Companies Act and Listing Act now. The latter has safeguards that we probably took for granted.

[dreamybear]

Keppel Land proposes selective capital reduction. Participating Shareholders will receive S$4.24 for each share cancelled if the proposal is approved by at least 75% of all shares voted by shareholders present and voting at the upcoming EGM and Court Approval is obtained.
https://links.sgx.com/1.0.0/corporate-an...7e16a09577

Interesting discussion. According to one of the doc : 
"The cash distribution of S$4.24 per share is the same amount paid to shareholders who had tendered their shares in the 2015 voluntary unconditional cash offer by Keppel Corporation (Offer), after they received the FY2014 dividend of S$0.14 per share."

While there is no guarantee of the capital reduction price nor the timing, logically I think it shd likely be around the level of the voluntary offer price as why would any BOD want to get unnecessary questions (the directors probably have a lot of other priorities(work) on their plate) ? Also, won't it be in the interest of the company to settle(get full control) ASAP ?  

Meanwhile, there is also a group of minorities who have gone thru' the Aztech experience.
https://www.businesstimes.com.sg/compani...ech-global

So, considering the above (possibly limited downside but with upside), is it a favourable wager to hold unto the shares(i.e. reject voluntary offer) assuming the OPMI have spare cash to bet ?

Are there any other possible scenarios ?

[ghchua]

Section 78G of the Companies Act which talk about capital reduction has nothing selective there, however, what Keppel Land sought was a selective reduction.

Keppel Land is using Section 78G of the Companies Act, as stated in their announcement. Please refer to 2. Appendix - KLL Announcement - Selective Capital Reduction.pdf file and I refer you to Page 5 of the document.

8. SHAREHOLDERS’ AND COURT APPROVAL
Shareholders’ approval is being sought for the Selective Capital Reduction in accordance with the provisions of the Companies Act.

Pursuant to Section 78G of the Companies Act, the Selective Capital Reduction requires (i) a special resolution to be passed by the Shareholders approving the Selective Capital Reduction and (ii) the approval and confirmation by the High Court of the Republic of Singapore (the “Court”) of the Selective Capital Reduction.
Upon an order of the Court being made approving the Selective Capital Reduction (the “Court Order”), the Selective Capital Reduction will take effect upon the lodgement of a copy of the Court Order, together with the other documents as prescribed under the Companies Act, with the Registrar of Companies of Singapore (the “Registrar”) within 90 days beginning with the date the Court Order is made, or within such longer period as the Registrar may allow.

[ghchua]

So, considering the above (possibly limited downside but with upside), is it a favourable wager to hold unto the shares(i.e. reject voluntary offer) assuming the OPMI have spare cash to bet ?

Are there any other possible scenarios ?

Hi dreamybear,

Whether to hold on or not depends on each individual and also how much you are holding. As I said earlier, if you just hold a bit, then it is better to make a clean exit and then re-invest into other stocks.

Yes, there are many other possible scenarios like a buyout. I think the recent Boardroom and Eu Yan Sang case studies are ones that you could check it out, besides your Aztech case study.

There are also other cases like UE E&C which didn't end well.
https://governanceforstakeholders.com/20...greatearth

So, it is not limited downside as you have stated here. The risk of holding an unlisted company is the same as any other company. You take equity risk and you can lose everything in a worst case situation.

[¯|_(ツ)_/¯]

Happy CNY and wish everyone a Huat Huat Dragon year ahead.

Really appreciate - especially Sifu Chua - sharing on why and why not of holding on to unlisted shares.

I agreed that my +ve experience on Aztech leads to my decision to hold unlisted BP shares.

Of course, looking at Sifu Chua's post carefully, I realised that actually it's not about Aztech but the risk of holding an equity.  Granted, an unlisted company is not supported by a liquid trading platform and when the company business turn, selling would be challenging.  

However, fundamentally, we need to asked ourselves whether BP is worth holding on to?

Granted too, BS is better than BP (as what some valuebuddies mentioned) and I will pick up some BS when the time comes.

Meanwhile, I'm stucked with BP - my choice - which is an investment journey I'm willing to take - with BP. 

Gratitude!
Enjoy:

[ghchua]

hi ghchua,

Thanks a lot. I see this difference between the Companies Act and Listing Act now. The latter has safeguards that we probably took for granted.

Hi weijian,

Though listing rules had its safeguards, do take note that listing rules cannot overwrite Company Act. Company Act is law, and changes needs to be passed in Parliament. Listing rules are just rules in place for listed companies. For better safeguards, changes in the Company Act should have been in place to protect investors.

A case in point is the Compulsory Acquisition rule, which is Company Act. The listing rule states that a takeover offer must be "Fair and Reasonable". If not, a company cannot delist from the exchange. However, when the acceptance rate reaches 90% threshold, compulsory acquisition takes over and overwrite listing rule. Company allow to delist and exercise their right of compulsory acquisition, even if the offer is not deemed "Fair and Reasonable" by the IFA. 

The above had been fixed somewhat by changes in the Company Act, with amendment to Section 215 of the Companies Act on 1 July 2023, the calculation of shares that may count towards the compulsory acquisition threshold has changed. As seen in the Boustead Projects case study, under the old act, compulsory acquisition would have been executed at the close of the exit offer. However, under the new act, Mr Wong will not count towards the 90% threshold even when he accepted the exit offer, compulsory acquisition did not take place at the close of exit offer.

Back to this selective capital reduction discussion, it is a Company Act and I don't see listing rule blocking a selective capital reduction proposed by a company if it is approved by EGM and sanctioned by court, and the offer is deemed "Fair and Reasonable" by the IFA following a mandatory or voluntary general offer.

[weijian]

hi ghchua,

Thanks a lot. I see this difference between the Companies Act and Listing Act now. The latter has safeguards that we probably took for granted.

Hi weijian,

Though listing rules had its safeguards, do take note that listing rules cannot overwrite Company Act. Company Act is law, and changes needs to be passed in Parliament. Listing rules are just rules in place for listed companies. For better safeguards, changes in the Company Act should have been in place to protect investors.

A case in point is the Compulsory Acquisition rule, which is Company Act. The listing rule states that a takeover offer must be "Fair and Reasonable". If not, a company cannot delist from the exchange. However, when the acceptance rate reaches 90% threshold, compulsory acquisition takes over and overwrite listing rule. Company allow to delist and exercise their right of compulsory acquisition, even if the offer is not deemed "Fair and Reasonable" by the IFA. 

The above had been fixed somewhat by changes in the Company Act, with amendment to Section 215 of the Companies Act on 1 July 2023, the calculation of shares that may count towards the compulsory acquisition threshold has changed. As seen in the Boustead Projects case study, under the old act, compulsory acquisition would have been executed at the close of the exit offer. However, under the new act, Mr Wong will not count towards the 90% threshold even when he accepted the exit offer, compulsory acquisition did not take place at the close of exit offer.

Back to this selective capital reduction discussion, it is a Company Act and I don't see listing rule blocking a selective capital reduction proposed by a company if it is approved by EGM and sanctioned by court, and the offer is deemed "Fair and Reasonable" by the IFA following a mandatory or voluntary general offer.

hi ghchua,

Thanks for the further elaboration.

There has been the equivalent of selective capital reduction via EAO (equal access offer) where the founder has specifically indicated that they are not accepting the EAO when the company was still suspended. Shares that accepted the EAO would be cancelled.

In your memory, has there been any listed company (whether suspended or not) that specifically used this "selective capital reduction" from the Company Act in the past?

[ghchua]

There has been the equivalent of selective capital reduction via EAO (equal access offer) where the founder has specifically indicated that they are not accepting the EAO when the company was still suspended. Shares that accepted the EAO would be cancelled.

In your memory, has there been any listed company (whether suspended or not) that specifically used this "selective capital reduction" from the Company Act in the past?

There are many cases of EAO lately, like Silverlake Axis, CityDev NCCPS, Sarine Tech and Jumbo Group. One can refer to their announcements for further details. Its a bit different from selective capital reduction as EAO is done based on existing share buyback mandate approved by shareholders in a general meeting.

From my memory, I haven't encountered a listed company doing selective capital reduction following a mandatory or voluntary general offer. Generally, their main aim is to delist first and if they are able to do so, they will settle with selective capital reduction after delisting in order to obtain 100%. If they wanted 100% in the first place, they would have used Scheme of Arrangement or make a generous mandatory or voluntary general offer in order to hit compulsory acquisition threshold.

[donmihaihai]

Section 78G of the Companies Act which talk about capital reduction has nothing selective there, however, what Keppel Land sought was a selective reduction.

Keppel Land is using Section 78G of the Companies Act, as stated in their announcement. Please refer to 2. Appendix - KLL Announcement - Selective Capital Reduction.pdf file and I refer you to Page 5 of the document.

8. SHAREHOLDERS’ AND COURT APPROVAL
Shareholders’ approval is being sought for the Selective Capital Reduction in accordance with the provisions of the Companies Act.

Pursuant to Section 78G of the Companies Act, the Selective Capital Reduction requires (i) a special resolution to be passed by the Shareholders approving the Selective Capital Reduction and (ii) the approval and confirmation by the High Court of the Republic of Singapore (the “Court”) of the Selective Capital Reduction.
Upon an order of the Court being made approving the Selective Capital Reduction (the “Court Order”), the Selective Capital Reduction will take effect upon the lodgement of a copy of the Court Order, together with the other documents as prescribed under the Companies Act, with the Registrar of Companies of Singapore (the “Registrar”) within 90 days beginning with the date the Court Order is made, or within such longer period as the Registrar may allow.

Yes. Keppel Land sought a selective Capital Reduction under Section 78G of the Companies Act. Section 78G deal with capital reduction by special resolution with court approval. There is no selective in the section 78G.  

Let me re copy again on Section 78G

Reduction by special resolution subject to Court approval
78G.—(1) A company limited by shares may, as an alternative to reducing its share capital under section 78B or 78C, reduce it in any way by a special resolution approved by an order of the Court under section 78I, but the resolution and the reduction of the share capital do not take effect until —
(a) that order has been made;
(b) the company has complied with section 78I(3) (lodgment of information with Registrar); and
© the Registrar has recorded the information lodged with him or her under section 78I(3) in the appropriate register.
(2) [Deleted by Act 36 of 2014]

[dreamybear]

There has been the equivalent of selective capital reduction via EAO (equal access offer) where the founder has specifically indicated that they are not accepting the EAO when the company was still suspended. Shares that accepted the EAO would be cancelled.

In your memory, has there been any listed company (whether suspended or not) that specifically used this "selective capital reduction" from the Company Act in the past?

There are many cases of EAO lately, like Silverlake Axis, CityDev NCCPS, Sarine Tech and Jumbo Group. One can refer to their announcements for further details. Its a bit different from selective capital reduction as EAO is done based on existing share buyback mandate approved by shareholders in a general meeting.

From my memory, I haven't encountered a listed company doing selective capital reduction following a mandatory or voluntary general offer. Generally, their main aim is to delist first and if they are able to do so, they will settle with selective capital reduction after delisting in order to obtain 100%. If they wanted 100% in the first place, they would have used Scheme of Arrangement or make a generous mandatory or voluntary general offer in order to hit compulsory acquisition threshold.

Speaking of EAO and looking at the SG take over code doc, it seems that majority SH (30%/50%) who increase shareholdings by > 1% will trigger a mandatory offer without the Council's consent.

Hence, 
- is it a viable privatisation route for majority SH to use "selective EAO(where only minorities participate)" to wipe out more issued shares in the mkt before an eventual voluntary offer down the road, since if controlling SH also participate in EAO, it might trigger mandatory offer immediately ? 

- cld selective EAO be alternative (of "returning cash to minorities SH") to dishing out dividends ?

- is this an especially attractive idea for a cash rich company with low capex requirements ?

Sidenote : EAO is more efficient than SBB spread over the entire FY but at the same time, will increase financials per share(BVPS, EPS). So there r pros and cons.

I am a noob in corporate law, is my interpretation correct ? 

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

https://www.mas.gov.sg/-/media/mas/resou...y-2019.pdf
" 14.1 When mandatory offers are triggered

Except with the Council’s consent, where:- 
(a) any person acquires whether by a series of transactions over a period of time or not, shares which (taken together with shares held or acquired by persons acting in concert with him) carry 30% or more of the voting rights of a company; or

(b) any person who, together with persons acting in concert with him, holds not less than 30% but not more than 50% of the voting rights and such person, or any person acting in concert with him, acquires in any period of 6 months additional shares carrying more than 1% of the voting rights..."