SGX RegCo reminds Golden Energy directors that IFA opinion on offer must ‘withstand scrutiny’

SINGAPORE Exchange Regulation (SGX RegCo) has reminded the board of Golden Energy and Resources : AUE 0% (Gear) to ensure its independent financial adviser (IFA) pays attention to both the terms of a recent proposed distribution and exit offer, as well as the cash consideration being offered.

Appropriate valuation methodologies should be used, and the analysis “supported by reasonable grounds and assumptions that can withstand scrutiny”, the exchange regulator said in a statement on Friday (Feb 24).

If Gear’s circular for the deal does not meet the regulatory requirements, SGX RegCo reserves the right to reject it.

Gear, which owns coal and gold mines, is proposing a distribution in-specie of its 62.5 per cent stake in Indonesia-listed thermal coal producer Golden Energy Mines (Gems).

Shareholders of Gear can choose to receive 1.3936 Gems shares (which were trading at 7,100 rupiah at the time of the announcement) for every Gear share they hold; or a cash consideration of 7,664.8 rupiah (which prices their entitlement of 1.3936 Gems shares at 5,500 rupiah each).

Gear then proposes to delist itself from the Singapore Exchange, with an exit offer price of S$0.16 per share.

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Shareholders of Gear who opt to receive Gems shares will be getting a total effective consideration of S$1.045 per share, based on the market price of Gems and SGD-IDR exchange rates at the time of the announcement. Shareholders of Gear who take the cash option for their Gems shares will be getting a lower effective consideration of S$0.846 per share.

Market watchers say the deal undervalues Gear’s remaining assets, which include a 64 per cent stake in Australia-listed metallurgical coal producer Stanmore Resources and a 50 per cent stake in gold miner Ravenswood Gold Group.

And since the deal was announced, Stanmore shares have gained 27 per cent – making the price even less attractive. They closed Friday at A$3.80.

An investor, Jeremy Raper, wrote to the authorities in the hopes of triggering an official examination of the proposed transaction. Among other things, Raper asked that the appointed IFA – W Capital Markets – be required to provide an opinion on whether the exit offer on its own is fair and reasonable.

SGX RegCo has now weighed in to remind the board that the IFA’s opinion must state whether the terms of the proposed distribution and the exit offer, when taken together as a single transaction, are fair and reasonable.

On top of that, however, the IFA must also consider whether the all-cash consideration of S$0.846 is fair and reasonable.

“If there are any material changes to the traded price of the company’s component assets that have taken place since the announcements, the IFA should consider these changes,” SGX RegCo said.

“If the IFA had taken into account other factors (such as the market trends for Gear’s coal businesses) in arriving at its recommendation notwithstanding the market valuation of such businesses, the IFA should state and explain why such factors are determinative in its recommendations.”

Gear has said the distribution and subsequent delisting are being done to reduce its exposure to the energy coal industry, which is facing environmental, social and governance pressures that have limited its financing options.

Gear shares closed Friday at S$0.85, up S$0.005 or 0.6 per cent.