Top Global minorities need better protection

INVESTORS have been getting some raw deals of late, and it may be time to consider tweaking the rules in order to better protect minority shareholders.

A case in point: On April 30, Sukmawati Widjaja's privately owned SW Investment Holding made an offer of S$0.39 per share for property group Top Global. The offer price represents a discount of nearly 47 per cent to Top Global's net asset value per share as at end-2020.

In an announcement, the offeror had highlighted the offer price's 122.9 per cent premium over Top Global's share price just before Ms Widjaja bought an 8.1 per cent block of shares in March in an off-market transaction at S$0.39 apiece.

The offeror also cited Top Global's low trading liquidity, the costs of maintaining a listed status, and the greater management flexibility afforded as reasons for a privatisation.

But minority investors might prefer something other than a privatisation at such a price.

Should all of Top Global be put up for sale, for example, there would likely be a suitor willing to pay more than S$0.39 per share.

Another option to realise value may be to sell some of the company's investment properties. As at end-2020, Top Global owned S$214 million of investment properties. These accounted for 38 per cent of its total assets.

Based on the company's latest annual report, these investment properties held include the following freehold properties in Singapore: 23 strata-titled retail and office units at Thong Teck Building on Scotts Road, 17 condominium units at The Quinn on Bartley Road, and one shophouse at Lorong Mambong in Holland Village.

Selling some or all of this portfolio for around book value should not be difficult. Proceeds of sales can then be distributed to all shareholders ahead of the privatisation exercise.

Then, there is also the matter of Top Global's growth potential.

The company's chairman Lam Lee G said in the latest annual report that infrastructural developments by the Indonesian government to improve connectivity to satellite areas such as Bogor, Bekasi and others around Jakarta will benefit the group's development projects. He added: "We expect the long-term outlook on the Indonesian residential property market to be positive."

The offer for Top Global is conditional upon the offeror obtaining not less than 90 per cent of all Top Global's shares.

SW Investment held no shares in Top Global at the time of the offer announcement. But Ms Widjaja and her son Hano Maeloa, who together owned 86.96 per cent of Top Global at the time of the offer announcement, have provided an irrevocable undertaking to accept the offer and waive their rights to any consideration payable.

SW Investment, the offeror, has indicated that if it gets more than 90 per cent of Top Global's shares, it will exercise its rights to compulsorily acquire the rest of the company's shares.

The large shareholding of Ms Widjaja and her son make it easier for the offer to turn unconditional and a compulsory acquisition to take place.

Such a situation - where a wealthy family holds a majority stake - tends to be the case in many of Asia's listed groups. Some investors may take comfort that these tycoons have skin in the game and will work to grow the business in a sustainable way. Increasing share price and dividend payment would benefit all shareholders.

But when majority shareholders try to privatise the listed entities, the interests of the majority shareholder and the minority investors will diverge.

The former may hope to succeed with as low an offer as is workable, while the latter would hope for a juicy price or at least one that accurately reflects the value of the business.

Privatisation offers such as the one for Top Global throw up the question of whether it is now too easy for majority shareholders to make an offer and then compulsorily acquire a company at such a large discount to book value.

Earlier this year, Guoco Group's GuocoLeisure Holdings succeeded in taking GL private at a final offer price of S$0.80. This was 84 per cent of GL's book value.

At the time of the offer announcement, the offeror received an undertaking from Guoco Group's GuocoLeisure Assets for just over 70 per cent of shares in GL - which went some way to helping it cross the 90 per cent compulsory acquisition mark.

Public equity markets allow business owners to raise permanent capital from third parties to fund expansion. And individuals participate in these offers in order to benefit from the growth of businesses, while getting access to liquidity and protection via market regulations.

Of late, many listed groups in Singapore have headed for the exit. Majority shareholders, perhaps frustrated by the market undervaluing their business and weighed down by the hassle of being listed, are choosing to take their businesses private. Subsequently, these private companies can continue to get credit from banks and tap private equity investors for capital.

Should this opportunity to benefit from growth in a private company be offered to minority shareholders too?

One possibility is to change current rules governing rights of compulsory acquisition.

Shares in a company can be suspended from trading and the company delisted if it cannot meet the minimum 10 per cent free float requirement. But it may be fairer at the outset of a privatisation offer for an offeror to seek approval from minority shareholders on whether the offeror should be allowed to exercise its rights to compulsorily acquire the rest of the shares upon crossing the 90 per cent threshold.

In such a case, minority shareholders would be wise to carefully consider if they are prepared to live with the illiquidity of owning shares in a privately held group.

Still, it may be time to better protect minority shareholders who like a business from being forced to sell out just because a group's status changes from publicly-listed to privately held.