Amara, Boustead Projects minority investors need not fear saying ‘no’ to offers

CHRISTMAS may have come early for minority shareholders of Amara Holdings and Boustead Projects .

Shareholders of both Mainboard-listed companies this month received offers for their shares that were above their last traded prices.

On the face of it, both offers appear to be reasonable. But small investors in both companies have good reasons to reject them.  

The offeror for Amara Holdings – a consortium linked to Albert Teo, the hotel group’s chief executive, other members of Teo’s family and private equity investor Dymon Asia – unveiled its offer on Nov 14 with a final offer price of S$0.60 per share.

The offer price represents a premium of 54 per cent over Amara’s share price of S$0.39 on Jun 15, before the company announced that its key shareholders were in talks over a possible transaction, and 30 per cent over the last transacted price at S$0.46 before the offer announcement.

However, the offer price for Amara is at a discount of 10 per cent to net asset value (NAV) per share as at end-June of S$0.67. 

Amara’s NAV could be conservative. While investment properties are held at fair value, hotels are held at historical cost less depreciation. 

Amara’s hotel portfolio comprises its flagship Amara Singapore in Tanjong Pagar, Amara Sanctuary Resort Sentosa, Amara Signature Shanghai (China) and Amara Bangkok (Thailand). Might Dymon Asia hope to snare Amara’s hotels at a bargain and ride on possible growth in the hospitality sector?

Amid a firm outlook for hotels here, UOL Group made a large exceptional gain from its recent sale of a hotel along Kitchener Road, near Little India. 

As Amara’s minority shareholders consider the offer, some dissenting shareholders risk parting with their shares against their will.

The offeror aims to make Amara its wholly owned subsidiary and does not intend to preserve Amara’s listing status. If the offeror snags 90 per cent or more of total shares, it intends to use its right of compulsory acquisition to forcibly buy all the shares of shareholders who have not accepted the offer at the offer price.

In short, a minority shareholder may be forced to sell his shares for below what could be an understated book value.

Boustead Projects

In contrast, engineering services group Boustead Singapore , could not avail itself of the power of compulsory acquisition, when it made a voluntary unconditional cash offer earlier this year for its real estate unit Boustead Projects.

When the offer for Boustead Projects at S$0.95 per share closed on Mar 27, the offeror and its concert parties held nearly 95.5 per cent of Boustead Project’s total outstanding shares. Trading of Boustead Projects’ shares was suspended as it no longer had the minimum required public float of 10 per cent. 

Boustead Projects’ minority shareholders who did not accept the voluntary offer were left in limbo for some months.

However, these investors are vindicated with a sweeter deal. Boustead Singapore made an exit offer on Nov 14 of S$1.18 per share for Boustead Projects.

In the exit offer, Boustead Singapore can exercise the right of compulsory acquisition if it receives acceptances of 90 per cent or more, excluding those held by the offeror and its related parties.  

PrimePartners Corporate Finance – the independent financial adviser to Boustead Projects’ recommending directors in relation to the exit offer – has deemed the financial terms of the exit offer to be fair and reasonable.

Still, shareholders may wish to think hard over the S$1.18 per share offer as this is at the low end of PrimePartners’ final valuation range for the shares of S$1.18 to S$1.42 per share. 

If Boustead Projects’ minority shareholders spurn the exit offer and their shares are not compulsorily acquired, they risk continuing to hold shares in a delisted entity. However, such a risk may be acceptable provided future prospects of the business are good.

Non-listed companies have fewer rules to comply with versus listed ones, and the level of disclosure of information is usually inferior to listed entities.

Still, there are regulations that protect the interests of minority shareholders of non-listed companies.

For example, assets of a company are to be used in the interest of all shareholders. Where non-listed companies pay dividends, minority investors receive a pro-rata share of the dividend. 

Crucially, a major shareholder of a delisted entity has much skin in the game and is vested to ensure the entity succeeds. Such an entity may take a long-term focus and not take undue risks as the major shareholder loses much if things go awry.

Minority shareholders in an unlisted company which does well can receive higher dividends and see the entity’s book value grow. Also, a privatised group can be potentially restructured and sold to private equity investors, thereby enriching all its shareholders.

Liquidity concerns

Minority investors in non-listed companies may face greater difficulty selling their shares versus investors in listed entities. However, trading liquidity of many listed entities is poor and many listed groups trade at depressed valuations.

Precedents exist of controlling shareholders making attractive offers for delisted entities long after delisting.

After hotel-owning group Goodwood Park Hotel’s delisting in December 2004, an entity linked to family members of the late tycoon Khoo Teck Puat offered in 2016 to buy out minority shareholders at a premium to revalued NAV.

The offer price in 2016 of S$43 per share was over 3.6 times the net exit offer price of S$11.88 per share in 2004, excluding the company’s stake in Standard Chartered at the time.

Given many listed entities trade poorly, major shareholders will seriously consider privatisations. Retail investors need to carefully evaluate privatisation offers and their appetite for owning shares in an unlisted entity.

While minority investors need patience when holding shares in delisted entities, owning shares in non-listed groups need not be scary.

With many businesses held in the unlisted space, small investors should learn to be comfortable investing in this space.

Meanwhile, retail shareholders can push potential offerors to be more generous by rejecting underwhelming privatisation offers.