Privatisation matters

[weijian]

In recent years, we have people like Richard Thaler winning the Nobel Prize for economics and people who are in charge, taking note and learning something about behavioral sciences. Kudos to Tan again, probably the best appointment at SGX for a long time. Actually what Tan is doing, directly helps SGX's bottomline on a first level - keeping companies listed and keep paying listing fees. On a 2nd level longer term, it creates more incentives for retail investors via a stronger safety net, whom are actually the ones that create most of the animal spirits (unfortunately lost in 2013 penny stock crash).

Taking a closer look at the responses to the delisting proposal - Point 1.10 is actually quite interesting as some bought up the possibility of a major shareholder that is not part of the offerer group having disproportionate say.

In the extreme case of a min 10% public float, let's say i have an Offerer A holding 70% and SSH/Hedge Fund B holding 20%. Under the new rules: Out of the 30% public float, SSH/Hedge Fund B will have a 66% (20/30) say but still lack another 10% to pass the 75% hurdle. So even if there a "under table/unofficial" effort by both Offerer A and SSH/Hedge Fund B to gang up, it will not pass by default with the 75% hurdle. This probably justify the reason why one needs 75%, rather than 50% on paper. But of course, if both of them really gang up in this extreme example, they can always count on the inertia of the minorities to work in their favor and they will probably succeed in practice.

Delisting response: https://api2.sgx.com/sites/default/files...711%29.pdf

[Jamesbond008]

The onus is on the corporate finance to prove that it is "fair" and "reasonable".

Usually the corporate finance guys have no balls to make these defining statements without proof and evidence.... they will pull out 100+ pages of past transactions and peer comparison to show the offer is "fair" and "reasonable"

[karlmarx]

Shareholder protection is a good thing - research shows that it is critical in developing a strong capital market. The New Rules also align us more closely with Hong Kong where premiums for privatisation offers are significantly higher than those here.

But were they necessary? The old listing rules already had safeguards built in. Voluntary delistings would fail if 10 per cent or more of the shareholders vote against the resolution. In the case of schemes, these are already under the jurisdiction of the High Court, a forum where all stakeholders can air their concerns.

A cursory examination of the past two years' delistings reveals that many have met the "fair and reasonable" test. And even those that didn't were able to be privatised through a compulsory acquisition, save for Vard. This begs the question: will the changes result in higher exit offers?

https://www.businesstimes.com.sg/compani...ive-market
...

TSMP does not seem to favour the new voluntary delisting rules.

If the worry is that tighter regulations will make SGX an unattractive venue for capital raising, then perhaps the way forward will be to look at how to make SGX an attractive capital raising venue, while also protecting minority shareholder interests. 

It is the same problem with labour. You can allow wages to be depressed to attract businesses. But you can also offer a value proposition to companies by matching rising wages with labour productivity.
...

The issue of Singapore shrinking equity market probably has more to do with the low borrowing costs, and low economic growth. Cheap borrowing costs means that most businesses need not turn to capital markets to raise funds, and low economic growth means a weak rationale for capital allocation. It is more likely that share listings are done for publicity reasons. Indeed, so many of the listings in recent years have had plenty of cash and little/no debt prior to listing. 

Perhaps at some later time when borrowing costs and economic growth are higher, there may be more companies returning to the equity market. And with that, higher valuations, and maybe fewer concerns regarding unfair delisting/privatisation offers.

[ghchua]

Hi karlmarx,

The new rules allow minorities to have a say in delisting, even if the offer is deemed "fair and reasonable" by the IFA. Because the offeror and related parties cannot vote on delisting, therefore even a small turnout of minorities can defeat the resolution. Previously, the offeror can vote and it is a big ask to gather 10% or more to block the resolution.

The recent LTC Corp and Challenger delisting attempt case studies are good examples. Even though in both cases the IFA deemed those offers "fair and reasonable", most minorities voted against the resolution. Unfortunately, for LTC Corp minorities, the new rules came too late for them.

As for GO, previously without the new rules in place, even if an offer is deemed "not fair but reasonable", minorities might have no choice but to accept the offer since they knew that if the free float of the stock drops below 10%, SGX is going to delist the company if it does not wish to restore its free float. With the risk of holding a unlisted company hanging over the head of minorities, they might have tendered their shares until it hits compulsory acquisition level. Therefore, having hit compulsory acquisition level without the new rules in place previously does not meant that the "fair and reasonable" rule is not important.

[soros]

THe minority shareholders should be allowed to vote for sale of assets in the market and liquidation of the company if the bidder's price is too low.

[ghchua]

THe minority shareholders should be allowed to vote for sale of assets in the market  and liquidation of the company if the bidder's price is too low.

Under current listing rules, for sale of assets, it does not need shareholders to vote unless it exceeds a certain threshold as stipulated in the listing rules. For IPT sale of assets that exceeds certain threshold, interested parties cannot vote. But it is tabled as an ordinary resolution at EGMs, so only need 50%+1 vote to go through. 

For liquidation of a company, all shareholders can vote but it is tabled as a special resolution at EGMs, which means need 75% or more for approval. There had been cases in the past whereby minorities had been out voted by controlling shareholders who do not wish to liquidate the company, despite being directed by SGX to delist. After delisting, minorities had been left holding an unlisted company.

[opmi]

"In the case of schemes, these are already under the jurisdiction of the High Court, a forum where all stakeholders can air their concerns."

The courts in SG are not for the general public to access. Need $$$ to hire lawyers to do this kind of thing. Even get a lawyer to attend EGM also costs money.

[ghchua]

"In the case of schemes, these are already under the jurisdiction of the High Court, a forum where all stakeholders can air their concerns."

The courts in SG are not for the general public to access. Need $$$ to hire lawyers to do this kind of thing. Even get a lawyer to attend EGM also costs money.

So, the most practical action for minorities is to defeat the scheme during the scheme meeting. Once the scheme had been approved, I guess it will be too late to stop it at the High Court level.

[karlmarx]

The recent LTC Corp and Challenger delisting attempt case studies are good examples. Even though in both cases the IFA deemed those offers "fair and reasonable", most minorities voted against the resolution. Unfortunately, for LTC Corp minorities, the new rules came too late for them.

I guess they can no longer do something like what LTC has done -- accept my offer or I will take the voluntary delisting way!

[weijian]

A cursory examination of the past two years' delistings reveals that many have met the "fair and reasonable" test. And even those that didn't were able to be privatised through a compulsory acquisition, save for Vard. This begs the question: will the changes result in higher exit offers?

https://www.businesstimes.com.sg/compani...ive-market
...

TSMP does not seem to favour the new voluntary delisting rules.

I think these guys missed the point. i see these changes will definitely result in less unfair offers to succeed. Offerers have to think twice about their offer price and strategy now, because it takes real money to make an offer. Whether it translate to higher exit offers or not, that's beside the point. Exit prices are dependent on the environment and as long as the door is firmly against unfair offers, then it builds the foundation for something wonderful to happen. If the value investor has the temperament to slog it out with the majority shareholder, history has shown wonderful things generally happen.