THE regulatory arm of the Singapore Exchange (SGX RegCo) is blocking a proposed divestment by Spackman Entertainment Group (SEG), pending a review of certain past acquisitions.
The directive, which came via a Notice of Compliance on Thursday night, requires SEG to conduct a review of its previous dealings to assess if they were on normal commercial terms or if they were prejudicial to the interests of minority shareholders.
On Aug 18, SEG had announced plans to sell its entire 43.88 per cent interest in Spackman Media Group (SMG) to its substantial shareholder, Spackman Equities Group (SQG), a company listed on the TSX Venture Exchange in Canada.
The consideration of S$2.30 per SMG share was the floor price that the board had set, and shall be fully satisfied by shares of SQG.
SGX RegCo noted that in March 2017, SEG purchased one million shares of SMG from certain existing shareholders at US$3 per share, which increased the company's shareholding interest in SMG from 24.53 per cent to 27.80 per cent.
Through subsequent purchases between Oct 2017 and Aug 2018, SEG purchase a total of close to 5.5 million SMG shares at US$3 each, which further increased the company's stake in SMG to 43.88 per cent.
When SGX RegCo queried SEG on these acquisitions, it explained that the share purchases were part of a restructuring exercise in connection with a proposed listing of SMG on the Hong Kong Stock Exchange.
SEG also told SGX RegCo that the shares in SMG were acquired at a significant premium to SMG's net tangible asset value, because it was a profitable company with the potential to grow significantly in value.
However, concerns have been raised about whether these transactions were entered into on normal commercial terms and in the interest of the company and its shareholders.
This is because the divestment proposed this month is at a "significantly lower" price than what SEG paid initially, while SEG, SMG and SQG share common directors (past and current), SGX RegCo said in a statement on Thursday.
SGX RegCo has therefore directed SEG's Audit & Risk Management Committee to perform a "holistic review" on the past acquisitions, including but not limited to, background checks on the vendors.
SEG is also required to provide SGX RegCo with details of the due diligence it performed on the past acquisitions and the vendors.
Until the review is completed and SGX RegCo is satisfied with the findings, SEG cannot enter into a binding agreement in relation to the proposed divestment.
If SGX RegCo deems any or all of the past acquisitions to be interested-person transactions (IPTs) under Chapter 9 of the Catalist Rules, it reserves the right to impose disciplinary actions against the company and/or relevant person(s).
SGX RegCo will also scrutinise the proposed divestment to determine if it constitutes an IPT, it said.