Delisting and relisting can be rewarding exercise for some founders

Singapore

THE recent announcement by Hong Kong-listed ESR Cayman that it would acquire real estate manager Ara Asset Management has dashed hopes of a mega initial public offering (IPO) in Singapore this year. If it had listed here, as the market had speculated it would, Ara would have been the third of four primary offerings on the Singapore Exchange (SGX) this year with links to previously delisted entities.

Tech products maker Aztech Group was privatised in 2017. A related entity, Aztech Global, was floated here in February.

Econ Healthcare, an operator of nursing homes, delisted in 2012. An enlarged entity, Econ Healthcare (Asia), returned to the market in April.

For both these companies, going private has been relatively beneficial.

When its co-founder Michael Mun offered to take the then loss-making company private in 2016, Aztech Group had a market capitalisation of S$20.4 million.

When it listed, Aztech Global had a market cap of close to S$1 billion and a price-earnings (PE) ratio of 21 times.

The market capitalisation of Econ Healthcare, meanwhile, was S$30.7 million in 2002 when it made its debut on the then secondary board Sesdaq. Its PE ratio was13.3 times. At the point it delisted, in 2012, its market cap had grown to S$80.4 million.

When the company came to market in April, it had a slightly lower market value of S$72 million but a PE ratio of 14.4 times.

Granted, both companies are also bigger now, and therefore probably deserve better valuations. But market players said there are generally other good reasons - beyond building their business away from public scrutiny - for companies to drop off and return.

Valerie Ong, a partner at law firm Dentons Rodyk & Davidson, told The Business Times that companies may want to list in a market that fits better with their businesses.

Resource businesses, for instance, gravitate to markets with investors and research interests that pursue these stocks. Many resource companies list in Australia for this reason, and Singapore has been good at attracting real estate investment trusts. Last month, local fish farm Barramundi Group chose to list in Oslo, where it has quite a few peers, even though its brand is better known in Singapore.

Ding Hock Chai, head of corporate finance at UOB Kay Hian, said if the delistings and listings are on different exchanges, the companies may potentially be trying to achieve location arbitrage, or trying to take advantage of the market cycle, potentially as a result of their shifting customer geographies, value-chain or business model.

Local crane rental company Tat Hong Holdings is one example of this. The company had been privatised in 2018 by its founder Roland Ng.

The company listed its Chinese unit Tat Hong Equipment Service on the Hong Kong Stock Exchange in January.

Mr Ng, chairman and group chief executive of Tat Hong Holdings, had said in an earlier interview that each of the company's three business arms - the other two covering the Asean region and Australia - has its own market and products.

Thus, it made sense to operate the three divisions independently. Delisting the whole group from SGX provided "better value", as it allowed Mr Ng to have the opportunity to float each individual unit in the respective stock exchanges.

Ms Ong of Dentons also said that some listed groups may over time grow so large and diverse that they appeal to all and none at the same time.

Institutional funds have allocations to certain sectors, and companies that do not fit squarely in one sector may be ignored. It may therefore make sense to spin-off non-core businesses (whether in a trade sale or an IPO) to create more focused offerings for institutional investors.

Ms Ong also pointed out that businesses that relist tend to have gone through substantial change in terms of ownership, substance and strategy. The term relist is a misnomer in that sense, she said.

Certainly this is true in the case of both Aztech and Econ Healthcare. At the time of its delisting, Aztech Group included a roast meats operation and an offshore and marine unit. Aztech Global, however, is more focused and also has a wider product range. Econ Healthcare, meanwhile, has expanded its geographical reach.

Some de-listings are spearheaded by private equity firms that are able to combine the privatised business with a synergistic business and relist at a more attractive valuation. "Taking the business to the next level requires financial resources, new markets and talent to open up business opportunities. These may come in the form of a strategic investor or private equity participation. The business owner may prefer a smaller stake in a bigger pie, driven by a global player," Ms Ong added.

Some business owners may feel the market has not priced their company correctly and thus take it private to revisit a listing when the market turns, or when capital markets can offer more attractive funding than bank rates, she added.

One other company that delisted from SGX is expected to return to the market soon.

Cityneon Holdings had been taken private at a price of S$1.30 per share back in 2019, valuing it at S$300 million. That was close to its peak valuation since its listing, but the company had cited tensions from different expectations among its various groups of shareholders as one reason for its delisting.

The provider of interactive exhibitions for movie franchises such as Marvel Avengers and Transformers has since raised private funding that values it at more than S$1 billion.

Chief executive Ron Tan had said that the company would need to tap public markets at some point in order to become competitive and noticeable on the world stage. He is hoping to be the world's largest experience entertainment provider with a valuation of S$5 billion to S$7 billion.