Singapore's change to delisting rule will lead to higher prices, say analysts

[SINGAPORE] Singapore's move to shift the power on delistings in favour of minority shareholders means bidders will need to pay higher premiums to get deals done.

That's according to analysts at United First Partners and RHB Securities after the Singapore exchange announced two changes on Thursday to the rules on voluntary delistings. Analysts at both firms said the new guidelines will now make the delisting process more onerous and therefore lead to higher offer prices in comparison to the past.

Taking listed firms private has been a key theme in Singapore's stock market over the past few years as persistent low valuations in the city state have prodded major shareholders to consider buying the rest of the company. Some 14 companies are undergoing privatisation or in the process of being bought out this year, the highest such count since 2016, according to a report from DBS Group Holdings Ltd on July 2.

The Singapore Exchange barred offeror and parties acting in concert from voting on voluntary delistings. It has mandated the offers must not only be reasonable but also fair, and kept the approval threshold at 75 per cent of shares held by independent shareholders, according to a statement.

"Exit offers must now be equal or more than the intrinsic value of the securities," said Justin Tang, head of Asian research at United First. "Given that only independent shareholders are allowed to vote, there is a greater certainty of minorities being better able to determine the outcome of the vote," he said.

The bourse will separately announce the bases for determining "fairness and reasonableness" of offers and will work with relevant industry bodies to develop standards for independent financial advisers, according to the statement.

Below is average premiums for privatisations and takeovers in Singapore, according to DBS.

This year's deal flow adds to a busy five-year streak when delistings outnumbered listings. Swedish buyout firm EQT Partners made an offer for Health Management International Ltd, while Japanese consumer electronics retailer Nojima Corp bought Courts Asia Ltd. Meanwhile, investors have also speculated that Singapore Airlines Ltd may take its maintenance unit SIA Engineering Co private, spurring a surge in the latter's shares.

United First's Mr Tang, who makes a living from advising clients on equity special situations including delistings and mergers, said such deals would continue across sectors but minority investors will now have "greater protection".

Jarick Seet, who was ranked as Singapore's top researcher of small-cap shares by Asiamoney Brokers Poll every year since 2015, agrees with Mr Tang. The new proposal will make it harder for privatizations to occur at low premiums as it will give minority holders' votes greater power, the head of small and mid-cap research at RHB Securities said.

"It will take a higher premium or offer to achieve the same results," Mr Seet said.

BLOOMBERG