Commentary: Boustead, a wake up call for retail investors?

Date: November 17, 2023

First published in Straits Times on 17 November 2023

SINGAPORE – Shareholders of the several companies who accepted “lowball’’ buyout offers must surely be feeling more than a touch of envy – and possibly even regret – at news of the substantial revision in the privatisation offer price for Boustead Projects.

If there is one key takeaway from the ongoing attempt by Boustead Singapore to privatise and delist its real estate and engineering subsidiary Boustead Projects it is this: When lowball takeover prices are tabled, minority shareholders should reject offers that are clearly exploitative and exercise patience.

This is what the Securities Investors Association (Singapore) or Sias has always advocated and will continue to recommend whenever we encounter lowball offers, such as those made for Chip Eng Seng, Lian Beng, Global Palm Resources and Golden Energy and Resources.

In the case of Boustead Projects, the final exit offer announced on Nov 15 of $1.18 is a hefty 24 per cent premium over the revised price of 95 cents lodged in February. Those who held out and refused to surrender their shares have ultimately prevailed.

To see why, a quick recap of subsequent events should prove useful.

On Feb 6, Boustead Singapore announced an offer of 90 cents per share for Boustead Projects. Sias then intervened with an appeal for a price that was closer to the company’s net asset value (NAV) of $1.265 as at Sept 30, 2022.

This resulted in the price being raised on Feb 22, albeit only marginally, to 95 cents. It was a price which, although closer to the NAV, was seen as being still not good enough.

This was a view largely shared by PrimePartners, the independent financial advisers to Boustead Projects, which issued an opinion that 95 cents was “not fair but reasonable’’.

It was deemed reasonable given that trading was illiquid but not fair because it fell way below PrimePartners’ own valuation range of $1.17 to $1.38.

At the time, the fear among minorities was that if they did not accept the 95-cent offer, they may have ended up in limbo, holding stock in a company whose shares could be suspended from trading because of an insufficient free float.

This fear probably arose out of the company’s response to the Singapore Exchange (SGX), which had asked what would happen to the shares held by public investors if the shareholding interest of Boustead Singapore and its concert parties exceeded 90 per cent.

The question was posed as Boustead Singapore had said it was unable to avail itself to the rights of compulsory acquisition.

Boustead Projects replied that shareholders who did not accept the offer would hold shares in a company that may be suspended from trading.

It also stated that Boustead Singapore had “no intention to undertake or support any action” to lift any trading suspension, even if it would be obliged to restore a 10 per cent free float, for example, by way of a placement, since the offer did not meet delisting conditions.

Notwithstanding this worry, on Mar 13 this year Sias called on investors to reject the revised price of 95 cents, saying that “shareholders should not fear that the company will be delisted even if they do not accept the offer. This is because the company cannot exercise compulsory acquisition under Section 215 of the Companies Act.

“Under the SGX’s listing rules, all exit offers for voluntary delisting must be ‘fair and reasonable’. In the event the company loses its free float, Sias calls on SGX RegCo to require the company to restore the free float because it has not complied with the Listing Rules requirements on exit offer for delistings.”

Boustead Projects shares were suspended from trading in March as the free float fell to just 4.5 per cent, below the 10 per cent threshold required to remain listed, and the company requested extensions to satisfy the listing requirements.

As has now transpired, the SGX in September directed the boards of both companies to delist Boustead Projects but to also make an exit offer that was both fair and reasonable, supporting the call by Sias.

Boustead Singapore has therefore revised its exit offer to $1.18, a 23.6 per cent premium over the last traded price before suspension of 95.5 cents and based on the audited consolidated financial statements of Boustead Projects for the financial year ended Mar 31, 2023. It is around 20 times earnings per share and, more importantly, 90 per cent of the NAV.

The final price falls within the independent financial adviser’s estimated range of $1.17 to $1.38 established in March. There is a good likelihood that the advisers may declare the current offer as “fair and reasonable”, even though it is near the lower end of the March valuation range and is 14.5 per cent below the top of the valuation range and7.5 per cent below the mid-point.

Also, under the current delisting proposal, the offeror will now make an unconditional cash exit offer for all shares, including those held by Mr Wong Fong Fui (along with some members of his family, referred to as the “Interested Persons”).

Independent shareholders of Boustead Singapore will now decide if the interested persons get to accept the $1.18 offer for their Boustead Projects shares.

By contrast, during the previous voluntary unconditional cash offer of 95 cents, where Mr Wong Fong Fui was deemed a party acting in concert with the offeror, the company had stated that “the offer does not extend to the shares that he controls”.

The bottom line? Minorities should not be cowed into accepting unreasonable and unfair prices for the shares that they have probably held for many years, and neither should they accept the argument that they may end up holding shares in a company whose trading may be suspended indefinitely.

The 4.5 per cent who held out have shown that individually they may not be able to make much of a difference, but collectively they can exercise considerable clout.

As the saying goes, patience is a virtue.

  • The writer is Mr David Gerald, Founder, President and CEO of the Securities Investors Association (Singapore)