Sabana Reit minority shareholders await MAS, SGX guidance on ESR-Reit merger

Singapore

QUARZ Capital Management said on Wednesday that it, together with other minority shareholders, looks forward to receiving guidance and support from the Monetary Authority of Singapore (MAS) and the Singapore Exchange Regulation (SGX Regco) on the proposed merger between Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) and ESR-Reit.

"We thank MAS and SGX RegCo for their prompt and clear statement in support of unitholders' best interest and corporate governance," said Quarz in a statement to The Business Times. "We, Black Crane and hundreds of unitholders who have signed up on our website and have voiced their concerns on the potential conflict of interest and fear for their savings and investments are looking forward to receiving guidance and support from MAS and SGX RegCo in this important matter."

Quarz and Black Crane together control about 10 per cent of Sabana Reit.

In a second attempt at a merger, ESR-Reit announced last month that it plans to acquire all units in Sabana in exchange for new ESR-Reit units at a gross exchange ratio of 0.94 times. By way of illustration, assuming an issue price of S$0.401 per new ESR-Reit unit, this would work out to Sabana Reit unitholders receiving S$0.377 per Sabana unit.

However, over 50 minority unitholders have voiced concerns about the proposed deal as the controlling shareholder of Sabana Reit's manager - ESR Cayman - also has a controlling stake in ESR-Reit's manager.

On Tuesday, the minority unitholders, including Quarz and Black Crane, sent a letter to MAS and SGX RegCo, flagging that they were "deeply concerned the Sabana Reit manager may have been conflicted and is not acting in the best interest of Sabana unitholders".

In the letter, they reached out to MAS and SGX RegCo for guidance, and support from the regulators to put a halt to "potential severe conflict of interest issues".

Among other things, they questioned why ESR Cayman was allowed to acquire a second Reit manager in the first place, which led to "significant" overlapping investment mandate, and was then allowed to manage both Reits for an extended period of time. The group has also urged the regulators to prevent ESR Cayman from managing the two Reits via the current structure should the proposed merger fail to materialise.

In addition, the unitholders called on the sponsor to divest its stake in Sabana's manager so that it could be acquired by the Reit at tangible book value or by third parties which do not have overlapping investment mandates.

In a joint statement on Tuesday, MAS and SGX had said in response to the letter: "Reit managers and their directors are required to act in the best interests of unitholders, and prioritise their interests over those of the Reit manager and its shareholders. In this regard, MAS and SGX RegCo require Reit managers to have in place measures to address any conflicts of interest that may arise and to manage the Reit with unitholders' interests in mind." They added that they would review the letter and engage the relevant parties as necessary.

Quarz - which had previously indicated it plans to vote against the merger - has stressed that the offer price, at a 26 per cent discount to Sabana's book value, is too low. Sabana's net asset value as at June 30 stood at S$0.51 per share. However, ESR-Reit has said that it will not revise the offer price.

Units in Sabana closed half a Singapore cent higher at 37.5 Singapore cents on Wednesday, while units in ESR-Reit also ended the day half a Singapore cent higher at 39 Singapore cents.

Meanwhile, Quarz told BT that it intends to accept the offer for Teckwah Industrial Corp even though it is at a slight discount to Teckwah's book and intrinsic value. "Given the Covid-19 environment, we welcome the decisive move taken by the consortium to substantially close the undervaluation gap of the share price and to provide a credible alternative to shareholders," said Quarz, which is Teckwah's fourth-largest shareholder thanks to its stake of over 6 per cent.

Last week, a consortium consisting of Teckwah's three largest shareholders launched a voluntary conditional cash offer of S$0.65 per share to take the company private. The offer for the packaging, printing and logistics firm, represents premiums of approximately 30 per cent over the closing price on July 27 and 42.5 per cent over the 12-month volume-weighted average price. It also tops the highest closing price of S$0.555 on Aug 4 and Aug 7.

The offeror has already landed irrevocable undertakings that translate to a 58.04 per cent stake, and the offer is conditional on receiving valid acceptances of at least 90 per cent.

Shares in Teckwah closed at 64 Singapore cents on Wednesday, unchanged.