Even as MAS plans an SGX revival, privatisations are still taking place

EVEN with moves to revitalise the Singapore stock market and analysts hopeful that there could be as many as 10 listings on the bourse, the slew of privatisation offers seen in 2024 – and the couple that have been made this year – indicates a different story. 

The low trading volume of a company’s shares, a challenging business environment, as well as cost savings are some reasons cited by companies that want to go private. 

In 2024, 17 companies listed on the Singapore Exchange (SGX) were the subject of privatisation offers. And although the new year has only just begun, various companies have already been the subject of such offers.  

A mega-deal is Cuscaden Peak’s S$0.98-per-unit offer to take Paragon Real Estate Investment Trust (Reit) private by way of a trust scheme of arrangement. 

The offeror noted that Paragon Reit has one of the lowest free floats among its retail Singapore Reit (S-Reit) peers, and has historically experienced low trading liquidity. 

The Business Times explains what it means to privatise a company and why companies choose this option. 

What’s a privatisation?

Public companies are traded on stock exchanges, such as the SGX, New York Stock Exchange or Nasdaq. 

A company that becomes private will be delisted from the bourse and its shares no longer traded. Going private also means that the company will no longer need to follow listing regulations, which usually require it to provide more information on its financials. 

For a privatisation bid to succeed, the majority shareholders have to make fair and reasonable offers to minority holders.

Why do companies privatise? 

Cost savings is one reason. 

Mainboard-listed Best World International, which delisted from the SGX last October, said that going private would help it save on compliance and regulatory costs, among other factors. 

The companies listed on the mainboard are subjected to annual listing fees, which range from S$35,000 to S$150,000, based on their market capitalisation. This is on top of an initial listing fee and other processing fees. 

Poor trading liquidity is another reason.  

Amos Group’s controlling shareholder PeakBayou highlighted low trading volumes in the company when it made an offer in September to take the offshore oil and gas equipment manufacturer private. 

PeakBayou said that its S$0.07-a-share offer provides shareholders an opportunity to liquidate and realise their investment at a premium to prevailing market prices. 

Privatisation routes

Companies can be privatised by way of a selective capital reduction. This refers to the cancellation of all issued ordinary shares in the company, except those held by non-participating shareholders. In return for their cancelled shares, shareholders receive cash. 

Other means include a scheme of arrangement, which is a legal process that allows a company to restructure its capital, assets or liabilities. 

A company must obtain shareholders’ approval to buy back shares or convert public shares into private ones. The scheme must then be approved by a court and, once authorised, it is implemented and the company is taken off the bourse. 

What’s in it for shareholders? 

Shareholders consent to the buyout offer and give up their ownership in the company, in exchange for a payment for each share that they hold. The payment is often at a premium to the current trading price.

Stuck in limbo?

But there are times when some shareholders are not agreeable to the privatisation offer and it can fail. Occasionally, shareholders end up being stuck in limbo. 

An ongoing saga that has captured the eyes of many investors is the Great Eastern-OCBC deal. 

Last May, OCBC made a voluntary unconditional offer of S$1.4 billion for the remaining 11.56 per cent stake in the insurer that it did not already own, with the aim of delisting it. 

When the offer closed on Jul 12, 2024, OCBC’s stake in its insurance arm had risen from 88.44 per cent to 93.32 per cent. This is lower than the 98.87 per cent shareholding that is required for OCBC to be able to compulsorily acquire the remaining shares it does not own. 

The figure also fell short of the 97.17 per cent level at which frontline regulator SGX RegCo may have directed Great Eastern to make an offer to delist.

Great Eastern is still listed on the SGX, but its shares remain suspended.