Should MAS, SGX RegCo weigh in on Sabana-ESR merger?

THE Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) could be on the verge of getting drawn into the controversial proposed merger of Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) and ESR-Reit, whose managers are both controlled by Hong Kong-listed ESR Cayman.

To be sure, minority investors face a real risk of being disadvantaged in these incestuous Reit mergers, sometimes without even knowing it. But exactly what should regulators do? Should these mergers be banned altogether? Or, can the risks inherent in these transactions be sufficiently reduced with rules and procedural conventions?

On July 16, the managers of ESR-Reit and Sabana Reit unveiled a plan to combine the two entities. Under the proposed deal, holders of every 100 units of Sabana Reit will receive 94 new units of ESR-Reit. Based on ESR-Reit's reference price of S$0.401 (defined as its volume-weighted price from June 10 to July 9), unitholders of Sabana Reit would effectively be getting S$0.377 for each unit they own.