IFA says offer of S$0.40 per share for Hwa Hong is fair and reasonable despite 20.8% discount to adjusted RNAV
Raphael Lim
THE revised offer of S$0.40 per share to privatise property player Hwa Hong Corporation is “fair and reasonable”, the independent financial adviser (IFA) to the deal said on Tuesday (Jun 14).
The IFA, Provenance Capital, advised the directors to recommend shareholders accept the offer from Sanjuro United, even though this represented a 20.8 per cent discount to the adjusted revalued net asset value (RNAV) of the group of S$0.5052 per share.
The board of directors have concurred with the advice and recommendation of the IFA and have recommended that shareholders accept the offer. Notwithstanding the recommendation, the directors from the controlling Ong family said they do not intend to accept the offer themselves.
The IFA noted that the the P/Adjusted RNAV ratio of 0.79 times for Hwa Hong is above the mean and close to the median P/RNAV ratios of 8 fair precedent privatisation transactions of 0.73 and 0.80 times respectively.
It also said the price of S$0.40 is 8.1 per cent higher than the initial offer price of S$0.37, and is at a 32.0 per cent premium above the historical volume-weighted average trading price of the shares in the 3 months prior to the offer announcement.
The IFA estimated the value range of the shares to be between S$0.40 and S$0.43, representing an adjusted P/ adjusted RNAV ratio of between 0.8 and 0.85 times, and the offer price is fair and reasonable as it is within its estimated value range.
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Hwa Hong’s adjusted RNAV of S$0.5052 per share is higher than its net asset value (NAV) of S$0.2852 per share as at end Dec 2021, boosted largely by net revaluation surplus arising from the independent valuations of properties held by the group, associates and joint ventures
Provenance Capital also noted that the revised offer price for Hwa Hong implied a premium to the mean and median trading price/NAV ratio of comparable companies.
In May, substantial shareholders of Hwa Hong made a voluntary conditional cash offer of S$0.37 per share to take the company private. This was later revised to S$0.40 per share in June. The offeror, Sanjuro United, is the bid vehicle of a consortium formed by shareholders of the company that collectively hold around 20 per cent of its shares.
It comprises Ely Investments, which is wholly-owned by former group managing director Ong Choo Eng and his family, and Ergonomix, which is wholly-owned by Dymon Asia Private Equity (South-east Asia) Fund II. Other members of the consortium include Roswell Assets and Crystalic Star Global.
Hwa Hong’s board said in response to the offer in May that it had also been for some time deliberating the appointment of a financial adviser to assist the company in unlocking and maximising shareholder value, as the board has been of the view that the company’s shares are undervalued.
The board announced that Evercore Asia would the company’s exclusive financial adviser — separate from the IFA appointed — to assist Hwa Hong in maximising shareholder value, including soliciting other potential offers and evaluating any offers that may emerge.
The IFA noted that there have been no alternative offer or proposal received by Hwa Hong as at the latest practicable date.
A report in Lianhe Zaobao last month noted that the battle for the property player is an intergenerational dispute among the members of its controlling Ong family. A number of Ong Choo Eng’s relatives are currently on the board of Hwa Hong.
The current Ong directors – Ong Eng Loke, Ong Eng Hui David, Ong Eng Keong and Ong Mui Eng – and their immediate family members collectively hold a 29.3 per cent stake in the company.
In the circular on Tuesday, it was stated that the current Ong directors and their immediate family members do not intend to accept the offer as they remain focused on determining whether shareholder value can be maximised through the Evercore exercise.
“The current Ong directors note that the estimated adjusted revalued net asset value of the shares stood at S$0.5052 per Share as of Dec 30, 2021,” the directors said in a letter to shareholders. They added that Evercore is continuing to solicit competing offers, and the company will make an appropriate announcement in the event of any material developments.
Hwa Hong shares closed unchanged at S$0.395 on Tuesday.
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