Court documents detail Evercore’s ties with ex-Hwa Hong director and how the investment bank was appointed

HWA Hong Corporation’s former director David Ong engaged investment bank Evercore to sell his shares in the company in September 2021, before a privatisation offer was made for the firm in May 2022.

After the offer was announced, Evercore was picked as Hwa Hong’s financial adviser (FA) out of four potential firms.

These are among the details that have come out of a legal dispute between Evercore and Hwa Hong, after the latter was privatised by a consortium, Sanjuro United.

According to court documents, the Securities Industry Council (SIC) – which administers the Singapore code on Take-overs and Mergers – had in June last year sought further information on Hwa Hong’s appointment of Evercore.

SIC had asked about the fee payable to Evercore if the Sanjuro offer turned unconditional; whether Evercore’s fees had been disclosed to all potential purchasers of Hwa Hong; and the chronology of events leading to the appointment of Evercore by Hwa Hong.

Documents show that Ong hired Evercore on a personal basis.

But the arrangement, dubbed Project Haut Brion, also covered a potential sale of shares held by certain other members of the Ong family.

Details of how Evercore came to be hired by Hwa Hong surfaced because Hwa Hong, now controlled by Sanjuro, is refusing to pay Evercore’s fees.

Sanjuro’s shareholders include Ong Choo Eng and Ong Eng Yaw. Both are related to David Ong, but were not listed in David Ong’s engagement letter for Project Haut Brion. Evercore moved to wind up Hwa Hong over a sum of S$8.6 million owed. This case was dismissed in March as the judge said there were triable issues.

A separate suit has been filed by Hwa Hong against Evercore and four former directors of Hwa Hong: David Ong (named in the suit as Ong Eng Hui David), Ong Eng Loke, Ong Eng Keong and Ong Mui Eng.

All the Ongs are related to Hwa Hong’s late founder, Ong Chay Tong.

The engagement letter for Project Haut Brion showed that David Ong would have to pay Evercore a success fee on completion of a transaction.

At a minimum, if his Hwa Hong shares were sold for less than S$0.40 each, the fee would be 2.5 per cent of the total consideration. The success fee would rise in tandem with the sale price, to a maximum of 4 per cent if the sale price was at least S$0.50 a share.

If David Ong’s relatives sold their shares under this arrangement, they would share the fees in proportion to their shareholdings.

Even if Project Haut Brion was terminated, however, and David Ong was able to sell his shares some other way, he would still have to pay Evercore – provided the sale took place within 12 months of such a termination.

David Ong would only cease to be liable for the success fee if Evercore was appointed by Hwa Hong as adviser in relation to a transaction that involved a sale of Hwa Hong shares.

In January 2022, Hwa Hong’s board of directors passed a resolution to appoint an external FA with the aim of maximising shareholder value.

The directors at the time were:

• David Ong
• Ong Eng Loke
• Ong Eng Keong
• Ong Mui Eng
• Ong Hian Eng
• Ong Eng Yaw
• Guan Meng Kuan
• Independent director (ID) Tham Chee Soon
• ID Huang Yuan Chiang
• ID and chairman Mak Lye Mun

Four candidates were shortlisted: Evercore, Deloitte, KPMG and EY.

Between January and May 2022 there were several changes to Hwa Hong’s board of directors.

Acting group managing director Ong Eng Yaw – who would later be a part of the Sanjuro consortium – stepped down from the board in April. Other directors, Guan and Ong Hian Eng – who is the father of Ong Eng Keong – also left the board in April.

Tham was not re-elected by shareholders at the company’s annual general meeting in April, as several Ong family members voted against his appointment. Huang failed to pass the two-tier voting process and became a non-independent director.

Mak also resigned from the board in May, leaving it with no IDs. Singapore Exchange Regulation later issued the company with a notice of compliance requiring the company to undertake a review relating to its board nomination process.

In May 2022, after Hwa Hong was informed that a consortium would be announcing a general offer for the company, the board met to discuss the appointment of an FA. Huang, who was the only director not part of the Ong family, objected to the appointment of an FA on the grounds that the FA might be at odds with the independent FA appointed to advise the IDs on the Sanjuro offer. He did not participate in the vote on the FA appointment.

In justification for selecting Evercore, the remaining Ong directors said they believed “KPMG and EY would not be in a position to solicit buyers or market shares at the highest price possible” as both firms had valued Hwa Hong’s assets at less than what the Ong directors believed Hwa Hong was worth.

They “unanimously agreed that Evercore was the most qualified firm to assist the company” as “Evercore was an investment bank, whereas Deloitte was predominantly an audit firm”. The directors also noted that Evercore was already familiar with the company and was already in contact with potential buyers, as it had been assisting David Ong with soliciting potential offers for his shares.

In the court documents, the directors also said they had conducted checks for conflict before proceeding.

Hwa Hong’s suit against Evercore and the four former directors is currently before the High Court. It was last mentioned in a case conference on Wednesday (Apr 12).