HG Metal, BRC Asia shares jump after activist fund urges sale
Singapore
SHARES of steel distributor HG Metal and steel mesh maker BRC Asia surged after activist investment fund Quarz Capital Asia published an open letter on Wednesday, saying that HG should consider selling its 22.6 per cent stake in BRC Asia and return money to HG's shareholders.
The fund said HG should do a "full strategic review on the potential divestment of its non-core but substantial" stake in BRC Asia "with a market value in excess of S$30 million", adding that it "believes that multiple buyers are interested in building up substantial stakes in BRC Asia as evident by the unsolicited bid announced by the company recently".
It suggested that part of the sale proceeds could be returned to shareholders and said HG should "immediately distribute up to" S$10 million of the excess net cash of S$29 million HG holds.
Usually thinly traded, HG shares jumped 28.6 per cent or S$0.10 to S$0.45 on about 1.5 million shares traded on Wednesday. The trading volume, though small in absolute terms, was a sharp spike from the roughly 63,500 shares that changed hands the previous time any did, which was last Friday.
BRC Asia shares climbed 18.7 per cent or S$0.13 to S$0.825 on Wednesday on about 898,800 shares traded, also very small in absolute terms. But the volume was still many times higher than the roughly 17,300 shares traded in the counter on Tuesday.
A 22.6 per cent stake in BRC Asia was worth about S$34.7 million on Wednesday based on 186.3 million shares outstanding, up from S$29.3 million at Tuesday's close of S$0.695.
Quarz's letter came after BRC Asia said on Tuesday evening that some of its substantial shareholders told it that they have received "an unsolicited approach in connection with a potential transaction" which may or may not lead to an acquisition of BRC Asia shares. The fund added that HG shares were severely undervalued and the group should "scale back" on its trading division due to structural headwinds and redeploy the capital and human resources from trading to its manufacturing division, to take advantage of growing construction productivity in Singapore.
Quarz did not say in its letter how many shares, if any, it owned in HG or BRC Asia. Havard Chi, Quarz Capital Asia's head of research, said in response to a query from The Business Times that it owned "just under 5 per cent" of HG and less than that for BRC Asia.
