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PR Newswire
23-03-2011, 07:27 AM
Business Times - 23 Mar 2011
NEWS analYSIS
Backdoor listings back in vogue?
Better fund access, sentiment revive interest in reverse takeover deals
By MICHELLE TAN
REVERSE takeover deals, which in recent years have seen waning interest because of the global recession, appear to be making a comeback thanks to greater access to funds and a more buoyant market climate now.
Two examples are PNE Micron Holdings and Kyodo-Allied Industries. Both these listed companies have recently announced their intention to undertake RTO transactions.
Also known as a 'backdoor' listing, an RTO is an alternative listing method that allows a private company to obtain a listing on a stock exchange, such as on the mainboard or the Catalist board of the Singapore Exchange (SGX). Although such a move needs the prior clearance of the exchange, it helps the listing aspirant avoid the relatively tedious and cost-intensive process of an initial public offering (IPO).
RTOs usually do not involve any form of pre-fund raising from the public, as opposed to an IPO. In fact, the objective is a listing status and any fund-raising from the public will subsequently take place under a separate transaction.
Potential targets for RTOs are usually dormant, loss-making listed entities that have little or no key operating assets left.
For instance, Fastube Limited, another listed company that has RTO plans, was loss making for the past two financial years, registering losses attributable to equity-holders of 46.8 million yuan and 99.7 million yuan for the financial years ended Dec 31, 2010 and Dec 31, 2009 respectively.
Listed entities that are the targets of RTOs are also usually plagued by low day-to-day trading volumes and relatively stagnant share prices.
But what makes RTOs potentially more attractive than IPOs in today's market?
For one, going public via a RTO is less costly as an underwriter is not required and involves less stock dilution than that offered in an IPO.
More pertinently, an RTO is less susceptible to market conditions. A standard IPO is usually riskier for companies as the transaction is reliant on market conditions - a factor that neither management nor the investment banks have control over.
For instance, the recent earthquake that hit Japan dampened demand for the Hutchison Port Holdings Trust IPO. This resulted in the trust plummeting as much as 6.9 per cent on its debut trading day.
Furthermore, if a company undergoing an IPO is in an industry that suddenly undergoes a down period or is hit by negative media, investors or even cornerstones may turn away from the deal and park their funds elsewhere, potentially triggering a pull back in the listing date.
In contrast, an RTO deal involves only the management and controlling parties of both the listed company and private company. This being so, dire market conditions would have relatively limited bearing on the outcome of the listing.
RTOs also require a shorter period before the private company achieves a listed status as compared to a conventional IPO. The many months and sometimes even years taken to put an IPO together may turn out to be detrimental to the completion of an IPO, especially when market conditions turn adverse.
Another plus factor is that many shell companies or RTO targets usually have past negative earnings to carry forward. These are losses incurred in previous years that can be applied to offset taxable income in subsequent years, thus sheltering future income from income taxes.
More interestingly, listed companies that recently announced their intention to undergo an RTO usually report an offer price that is at a premium to the last traded share price prior to the announcement.
Take, for example, PNE Micron. The company noted that the acquisition will be paid via the issue of 2.65 billion new PNE Micron ordinary shares at a price of 8.5 cents each - a 143 per cent premium to the stock's last trading price of 3.5 cents prior to the announcement. Not surprisingly, the news triggered a sharp price rally in the Catalist-listed counter once the trading halt was lifted. PNE Micron advanced as much as 114 per cent or four cents to hit an intra-day high of 7.5 cents before closing at 7 cents on healthy volumes that day. A premium offering price (pre-consolidation) was also observed for Kyodo-Allied's proposed RTO.
All in all, it looks like the return of RTOs is here to stay for now as it remains an attractive mechanism to seek a listed status in equity markets today.
NEWS analYSIS
Backdoor listings back in vogue?
Better fund access, sentiment revive interest in reverse takeover deals
By MICHELLE TAN
REVERSE takeover deals, which in recent years have seen waning interest because of the global recession, appear to be making a comeback thanks to greater access to funds and a more buoyant market climate now.
Two examples are PNE Micron Holdings and Kyodo-Allied Industries. Both these listed companies have recently announced their intention to undertake RTO transactions.
Also known as a 'backdoor' listing, an RTO is an alternative listing method that allows a private company to obtain a listing on a stock exchange, such as on the mainboard or the Catalist board of the Singapore Exchange (SGX). Although such a move needs the prior clearance of the exchange, it helps the listing aspirant avoid the relatively tedious and cost-intensive process of an initial public offering (IPO).
RTOs usually do not involve any form of pre-fund raising from the public, as opposed to an IPO. In fact, the objective is a listing status and any fund-raising from the public will subsequently take place under a separate transaction.
Potential targets for RTOs are usually dormant, loss-making listed entities that have little or no key operating assets left.
For instance, Fastube Limited, another listed company that has RTO plans, was loss making for the past two financial years, registering losses attributable to equity-holders of 46.8 million yuan and 99.7 million yuan for the financial years ended Dec 31, 2010 and Dec 31, 2009 respectively.
Listed entities that are the targets of RTOs are also usually plagued by low day-to-day trading volumes and relatively stagnant share prices.
But what makes RTOs potentially more attractive than IPOs in today's market?
For one, going public via a RTO is less costly as an underwriter is not required and involves less stock dilution than that offered in an IPO.
More pertinently, an RTO is less susceptible to market conditions. A standard IPO is usually riskier for companies as the transaction is reliant on market conditions - a factor that neither management nor the investment banks have control over.
For instance, the recent earthquake that hit Japan dampened demand for the Hutchison Port Holdings Trust IPO. This resulted in the trust plummeting as much as 6.9 per cent on its debut trading day.
Furthermore, if a company undergoing an IPO is in an industry that suddenly undergoes a down period or is hit by negative media, investors or even cornerstones may turn away from the deal and park their funds elsewhere, potentially triggering a pull back in the listing date.
In contrast, an RTO deal involves only the management and controlling parties of both the listed company and private company. This being so, dire market conditions would have relatively limited bearing on the outcome of the listing.
RTOs also require a shorter period before the private company achieves a listed status as compared to a conventional IPO. The many months and sometimes even years taken to put an IPO together may turn out to be detrimental to the completion of an IPO, especially when market conditions turn adverse.
Another plus factor is that many shell companies or RTO targets usually have past negative earnings to carry forward. These are losses incurred in previous years that can be applied to offset taxable income in subsequent years, thus sheltering future income from income taxes.
More interestingly, listed companies that recently announced their intention to undergo an RTO usually report an offer price that is at a premium to the last traded share price prior to the announcement.
Take, for example, PNE Micron. The company noted that the acquisition will be paid via the issue of 2.65 billion new PNE Micron ordinary shares at a price of 8.5 cents each - a 143 per cent premium to the stock's last trading price of 3.5 cents prior to the announcement. Not surprisingly, the news triggered a sharp price rally in the Catalist-listed counter once the trading halt was lifted. PNE Micron advanced as much as 114 per cent or four cents to hit an intra-day high of 7.5 cents before closing at 7 cents on healthy volumes that day. A premium offering price (pre-consolidation) was also observed for Kyodo-Allied's proposed RTO.
All in all, it looks like the return of RTOs is here to stay for now as it remains an attractive mechanism to seek a listed status in equity markets today.
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