SGX asks Fabchem to appoint new valuer for interested party transaction

SINGAPORE Exchange Regulation (SGX RegCo) has issued a notice of compliance to watch-listed Fabchem China, requiring the latter to appoint a new valuer for a proposed disposal of subsidiary Shandong Yinguang Technology.

Fabchem had on March 19 entered into a sale and purchase agreement with controlling shareholder Triple Vision to dispose of its entire interest in Yinguang Technology, which produces explosive devices widely used in the mining, energy exploration, hydroelectric and infrastructure construction sectors.

The proposed disposal, if completed, will result in Fabchem ceasing to have any operating business. It will be deemed a cash company under SGX's listing rules. The proposed deal is also deemed an interested person transaction and a major transaction under listing rules.

Fabchem had proposed to sell Yinguang Technology for S$18 million - a substantial discount of 42.3 per cent or 65.7 million yuan (S$13.2 million) to Yinguang Technology's net asset value of 155.3 million yuan as at Sept 30, 2020.

According to AVA Associates, Fabchem China's appointed valuer, Yinguang Technology had a value of 39.5 million yuan. This valuation was based on an income approach.

But AVA Associates had also, in its summary valuation report, noted that Yinguang Technology has substantial real estate assets with a market value of 300.9 million yuan. And based on a cost approach, Yinguang Technology has a revalued net asset value of 271.7 million yuan.

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Given these "significant variances" in valuations, SGX RegCo said there is cause for concern about whether the interested person transaction has been fairly valued.

SGX RegCo now requires Fabchem to appoint another valuer of "international standing and repute". This appointment is subject to SGX's approval.

Mainboard-listed Fabchem is currently on the SGX watch list. Companies are placed on the watch list if they record losses for the three latest consecutive financial years and have an average daily market cap of under S$40 million over the last six months.

Shares of Fabchem closed 1.4 per cent or 0.5 Singapore cent lower at 36.5 cents on Thursday.