Minority shareholders should hold out against Lian Beng’s lowball offer

Date: April 24, 2023

First published in Business Times on 19 April 2023

Construction and engineering company Lian Beng Group : L03 -0.74% is trying its luck with a lowball privatisation offer for the company. Minority shareholders should stand their ground, as they may hold a trump card.

The Ong family behind Lian Beng wants to take it private at S$0.62 a share. This is a mere 40.3 per cent of Lian Beng’s net asset value (NAV), which stood at about S$1.54 per share as at end-November.

Worse still, the price might be lowered further by any dividend or return of capital Lian Beng declares, makes or pays from now. Lian Beng’s financial year ends in May. In the last financial year, it paid a final dividend of S$0.02 per share.

The Ong family may believe it will be able to push the offer through in spite of the low price. They are making the offer through a company called OSC Capital, and members of the Ong family, who own nearly 69.6 per cent of Lian Beng’s shares, have agreed to accept the offer.

This means OSC Capital only needs acceptances representing 20.4 per cent of Lian Beng’s shares to hit the 90 per cent acceptance threshold and forcefully acquire the rest of the company.

But shareholders should note that this ability to squeeze out minority investors will be removed in time. The Ministry of Finance and the Accounting and Corporate Regulatory Authority earlier this year accepted proposed amendments to the Companies Act that will change how the 90 per cent threshold is reached.

Under the new rules, the 69.6 per cent owned by the Ong family would not count towards the 90 per cent threshold. The Ong family would instead have to obtain acceptances representing 27.36 per cent of Lian Beng’s shares.

The timeline for when this loophole is closed depends on when the amendment is tabled in Parliament. But if the Ong family’s offer fails this time round, it would need to wait 12 months before it can make another offer. This makes it likely that the family would run up against this difficulty.

Lian Beng isn’t the only company that appears to be seizing the last chance to take advantage of the loophole since The Business Times reported in February about the planned amendment.

Both GK Goh : G41 0% and Global Palm Resources : BLW 0% received offers from their majority shareholders, with intentions of compulsory acquisition and privatisation.

GK Goh’s deal is already in the bag. The offeror announced on Apr 10 that it had hit the 90 per cent threshold required and would proceed to delist the company.

Global Palm Resources’ chief executive Suparno Adijanto, along with his six family members, on Mar 29 launched an offer to take the palm oil producer private at S$0.25 per share. This offer price is also below the company’s NAV per share of S$0.30 as at Dec 31.

But Global Palm is a small company, with a market capitalisation of S$62.8 million as at Apr 18. It was reporting losses as recently as FY2020, and has not managed to gain a wide investment following.

Lian Beng, on the other hand, has a market cap of S$347 million and a steady, profitable business. The group’s construction order book in Singapore stood at approximately S$2.1 billion as at Mar 7, which it said “will provide a sustainable flow of activity through FY2027”.

The disposal of a freehold commercial property in Joo Chiat completed in December at S$42 million is also “expected to have a positive impact on the net earnings per share and the net tangible assets per share of the group” for the current financial year ending May 2023, Lian Beng said in a September filing. It had bought the property at about S$27 million.

At a price of S$0.62, it would take about S$94.2 million to buy out the remaining shares not owned by the Ongs.

The group had retained earnings of S$721.2 million and cash of S$246.9 million as at end-November, while cash flow from operating activities net of working capital stood at S$14.6 million in the half-year financial period.

Some investors could be expecting OSC Capital to sweeten the offer, as the counter closed above the offer at S$0.655 on Tuesday (Apr 18).

There are good reasons for Lian Beng to take the company private. The company has, over the years, come under scrutiny over its corporate governance. And running a publicly listed company is only going to get more difficult as environmental, social and governance concerns become more important to investors.

Lian Beng recently drew attention from Singapore Exchange Regulation for not publishing the exact remuneration of its top and key executives, as well as its directors. Lian Beng claims that such disclosure may give rise to recruitment and talent retention issues in a highly competitive business environment with a limited talent pool. Most of these executives are members of the Ong family.

But if Lian Beng continues to be listed, it would have to make such disclosures in the future. Following changes to listing rules, this information is required for annual reports prepared for financial years ending on or after Dec 31, 2024.

Minority shareholders should wait for OSC Capital to up its offer price, as there are compelling reasons for the Ongs to put more money behind their bid.

  • The writer is Hock Lock Siew, The Business Times