Date: March 22, 2018
SIAS today met with a group of China Hongxing minority shareholders regarding their concerns over the bid by majority shareholders, the Wu family, to acquire the assets of the company. The session with SIAS was assisted by a pro bono lawyer from Morgan Lewis Stamford, shareholders were advised of the pros and cons of the resolutions put forth by the company. It was clear to SIAS from reading the social media responses that some shareholders did not understand the proposal and were confusing the issues.
Shareholders must understand the proposal and make a rationale decision as the vote will affect their investments. By voting for the proposed resolutions, shareholders will get the distributions from the disposal of the assets and still retain ownership of the company. After the disposal, the company would become a cash company which could be a potential RTO candidate. If shareholders vote against the proposals, then it would be “status quo” for the company. Shareholders need to ask themselves – what are my options? It could eventually be asked to delist from SGX, or forced into liquidation, in which case the creditors would get first pick leaving little or nothing for the shareholders, or wait for a possible buyout. With regards to the latter, the company had previously announced that they were pursuing a potential offeror, but it failed to materalise.
While the IFA and Valuer had ascribed a market valuation of zero for the Target Group on an “as is” basis, shareholders are of the view that, given the prominence of brand Erke in China, the intrinsic value of the Target Group should be worth more. While the IFA has opined that the proposed disposal of the Target Group to the Wu family as being on normal commercial terms, and not prejudicial to the interests of the independent shareholders, SIAS calls on the Board to account to independent shareholders if the Board has tried to obtain a better price or held an auction for the Target Group to obtain the best value to shareholders. There appears to be no information on this.
In the circumstances, shareholders are advised to consider their vote very carefully and ask whether their decision will achieve value for the investment. However, SIAS calls on the company to postpone the EGM to engage the shareholders in an informal dialogue session to help them understand the issues and answer all their questions before they vote.
President & CEO
Securities Investors Association (Singapore)