Golden Energy proposes break-up and delisting in deal that values company at S$2.8b

COAL miner Golden Energy and Resources (Gear) wants to exit its thermal coal business and delist from the Singapore Exchange, and is offering its shareholders cash or a combination of cash and shares to do so. The proposed deal values the company at up to S$2.8 billion, which is above the company’s market capitalisation but below the market-implied value of its subsidiaries.

Gear is proposing a distribution in specie of its 62.5 per cent stake in Indonesia-listed thermal coal subsidiary Golden Energy Mines (Gems). Thermal coal, or energy coal, is coal used to generate energy.

Gear shareholders would receive 13,936 Gems shares for every 10,000 Gear shares they own, which works out to a value of about S$8,850 based on Gems’ share price of 7,100 rupiah on Nov 8 – before the deal was announced. If they do not want the shares, however, shareholders can choose instead to received cash of 76.6 million rupiah, equivalent to S$6,855.81 at the prevailing exchange rate.

The company is also proposing to delist, with an exit offer of S$0.16 per share.

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

The illustrative consideration per share, based on the sum of the exit offer and the Nov 8 value of Gems, is S$1.045, and values Gear at S$2.8 billion. On pure cash terms, the consideration is S$0.846 – a total value of S$2.2 billion.

Gear shares had ended Nov 8 at S$0.67, giving the company a market cap of S$1.77 billion. The deal is therefore above the last market value of the company before the transaction was announced. The illustrative consideration of S$1.045 is also above Gear’s highest ever share price of S$0.93.

Both illustrative considerations are also above Gear’s net asset value (NAV) per share of US$0.3075 (S$0.43) as at Jun 30.

But the NAV may not adequately reflect Gear’s business. Besides the 62.5 per cent stake in Gems, worth 26.1 trillion rupiah or S$2.3 billion based on the price of 7,100 rupiah, Gear owns 64 per cent of Australia-listed metallurgical coal supplier Stanmore Resources.

At current share price levels, that stake is worth about A$1.6 billion (S$1.4 billion). Assuming the entire Stanmore stake were to be distributed to Gear shareholders, that works out to A$0.61 per share.

Gear’s major shareholder, Dian Swastatika Sentosa (DSS), which owns 77.49 per cent of Gear, has undertaken to support the deal by accepting the exit offer. This undertaking is, however, conditional upon approval of DSS’ shareholders. DSS will have to abstain from voting on the distribution.

The proposals come as Gear seeks to reduce its exposure to energy coal by shifting away from its existing energy coal business currently conducted by Gems through the proposed distribution.

“Such segregation will allow the group to reposition itself away from the energy coal industry which is currently facing environmental, social and governance pressures, allowing the group to expand on its financing options which would otherwise have been relatively limited if it were to be continuously exposed to the energy coal business,” Gear said in a bourse filing on Nov 9.

Post-segregation, the group’s portfolio would primarily comprise its metallurgical coal business in Australia, as well as other non-coal businesses in gold mining, forestry and renewable energy.

The offerer has appointed SAC Capital as its sole financial adviser for the exit offer.

News of the deal sent shares of Gear up, but only marginally. They were trading close to 20 per cent higher, up S$0.13 at S$0.80 as of 1.58 pm, which remains below the all-cash illustrative consideration.