Market watchers say Golden Energy exit offer unfair, results for shareholders uncertain

COAL miner Golden Energy and Resources (Gear) has announced that it wants to exit the thermal coal business and delist from the Singapore Exchange (SGX), but market watchers said that the deal terms may not be favourable to the company’s shareholders.

Phillip Securities analyst Terence Chua said that while the total consideration is higher than the counter’s last traded price and net asset value before the offer was announced, shareholders could wind up disappointed as the offer is below the “overall SOTP (sum of the parts)” of the company.

Gear on Wednesday (Nov 9) sounded its intention to give shareholders an option of cash, or a combination of cash and shares, to delist from SGX.

The company is proposing a distribution in specie of its 62.5 per cent stake in Indonesia-listed thermal coal subsidiary Golden Energy Mines (Gems). Shareholders can choose to receive either 13,936 Gems shares for every 10,000 Gear shares they own, or cash of 76.6 million rupiah (equivalent to S$6,855.81 at the prevailing exchange rate). The former option translates to a value of some S$8,850 based on Gems’ share price of 7,100 rupiah on Nov 8.

On top of this distribution in specie, shareholders will also receive S$0.16 a share in an exit offer for Gear’s delisting.

Chua noted that shareholders who opt for the distribution in specie would be subjected to price uncertainty. The price of Gems has fallen since the deal was announced. The counter closed at 6,575 rupiah on Thursday (Nov 10).

“It is likely that (Gear) might have to offer a higher consideration to reflect its overall business to entice shareholders to vote for the deal,” said Chua. 

Global Equity Research analyst Arun George said in a note carried on Smartkarma that the deal brings good news for minority shareholders in the sense that the offer is at a premium to historical share prices and multiples.

But he noted the all-cash alternative is “unattractive”, and that the S$0.16 exit offer also values Gear at a discount.

Like Phillip’s Chua, George drew attention to Gear’s other holdings. In addition to its Gems stake, Gear owns 64 per cent of Stanmore Resources, an Australian metallurgical coal producer, and 50 per cent of a gold miner called Ravenswood.

After adjusting for debt, George calculates that the Stanmore stake is worth S$0.17 per share. “In other words, the delisting proposal is 18 per cent below the value of the Stanmore stake adjusted for net debt and does not attribute any value to the 50 per cent stake in Ravenswood,” he said.

George noted, also, that Gear’s shareholder register is “very fragmented with no substantial shareholder”.

“The offeror is likely hoping that a lack of large institutional investors and apathy from retail investors will help it get shareholder approval,” he said. 

Shareholders will be asked to vote on the distribution and delisting at an extraordinary general meeting. The distribution in specie and delisting are inter-conditional, meaning both must be approved for the deal to take place.

Gear’s major shareholder, Dian Swastatika Sentosa, which owns 77.49 per cent of Gear, has undertaken to support the deal by accepting the exit offer but is required to abstain from voting on the proposed distribution.