Hard for minorities to win in LTC delisting

Singapore

A BID by the controlling Cheng family to delist steel trading and property group LTC Corp is close to crossing the finish line. If the offeror can persuade the last remaining minority shareholders to step out of their way, that is.

Large shareholders who want to play the delisting game are finding it increasingly harder to swipe an easy victory.

Value investors and retail punters who've been forcibly parted from their shares during the many delisting exercises that have struck out the Singapore Exchange's most mispriced counters in recent years, are beginning to put up more of a fight.

While most shareholders have already accepted the Chengs' cash offer of S$0.925 per share, the Chengs must procure 90 per cent of all shares in order to take LTC private. They controlled 86.32 per cent of LTC as at May 18, after extending the acceptance period four times since the offer was launched on Feb 9.

The offer closes on May 31, but that is not a hard deadline and will likely be extended if the Chengs don't cross the 90 per cent mark by then.

Progress has crawled along. At the end of May 11, the Chengs had 86.24 per cent of LTC. The gain of 0.08 percentage points between then and now is due mainly to the Chengs buying up all the shares they can from the market - which is not much. They cannot fill sell orders at more than S$0.925 a share unless they want to pay the same difference to all and sundry.

In other words, most of the folk who didn't tender their shares still have not done so. Some of them are probably genuinely unaware of the present offer.

Others simply feel they have been lowballed. Shareholder Michael Seow told The Business Times: "I'm not accepting the offer for sure. I know some fellow shareholders, we agree that it was a gross undervaluation and did not tender our shares."

At S$0.925 per share, the Chengs' price is 44 per cent lower than LTC's revalued net tangible asset value (RNTA) per share of S$1.66. A good 34 per cent of LTC's asset base comprises four freehold rent-collecting industrial properties at Arumugam Road, near the MacPherson MRT interchange station.

On the other hand, the Chengs have pointed out that the last time LTC shares traded above S$0.925 was in the year 2000. So anyone who bought shares over the last 18 years and cashed out now would be in the money.

In fact, the offer price represents a 49.4 per cent premium over the volume-weighted average price (VWAP) per share in the 12 months leading up to the day the offer was launched.

LTC's appointed independent financial adviser (IFA) has flagged that its RNTA is not necessarily a realisable value. Justin Tang, head of Asian research at United First Partners, agreed: "I see a few HDB flats in Commonwealth for sale at an agent assessed valuation of S$1.5 million. While it is possible, it is not probable that they realise a transaction at that sale price."

Still, LTC's assets are hard assets, comprising mainly properties and steel inventory, and steel prices have been rising since late 2015, shareholders protest. Mr Seow said: "RNTA is realisable if the management acts on it to redevelop the properties."

In every transaction, a perfect marriage of interests is hard to come by.

But minority shareholders hoping to scupper LTC's delisting face some very tough odds.

If the Chengs' exit offer fails, they will still keep the shares that have been tendered since they had secured regulatory approval for their offer to go unconditional at a lower acceptance threshold. (Equally, those who have tendered their shares for cash will not have to worry about a veto from dissenting shareholders.)

The Chengs can also opt for a voluntary delisting of LTC by way of an extraordinary general meeting (EGM), the same route taken by Fincantieri in its bid to delist shipbuilder Vard Holdings.

At such an EGM, LTC will be delisted if at least 75 per cent of the votes favour it, with not more than 10 per cent voting against it.

In Vard's case, minority shareholders hoping to ride the oil price recovery showed up in droves to try to veto the delisting. They are still asking Fincantieri for a fairer price. Fincantieri had raised its offer price once before.

However, minorities have not always claimed victory by thumbing their noses at cheap offers.

Over the past year, failed attempts were made to delist Lafe Corp, Top Global, and Kingboard Copper Foil. Kingboard's shareholders were offered a cash exit at discount of 44 per cent to its RNTA per share. The offers for Lafe Corp and Top Global were 60 per cent lower than their net asset values.

On average, the VWAP per share of these three companies in the six months after the offers closed was 16.5 per cent below the offer price.

Only in Kingboard's case did its shares rise above the offer price in April this year, driven by heavy buying from Kingboard's controlling shareholder. The Takeover Code states that offerers cannot make a second offer with better terms to any shareholder until six months after their first offer is closed.

Vard was just the tip of the iceberg. The pattern of shareholder hold-outs is a trend worth noting as Singapore's share investors wise up to the delisting playbook.

Yet, even when retail investors have their revenge, there's no saying how long they may have to wait before a better exit offer presents itself.

While waiting, they remain at the mercy of the largest shareholders, stuck in a "value trap" of a uniquely Singaporean make.