Boustead’s suspension: A fight SGX cannot afford to lose

IT HAS been more than a week since trading of shares in Boustead Projects was suspended, and the fate of minority investors who did not accept the lowball offer for the company is still unclear.

On Tuesday (Apr 4), Boustead Projects said that its parent company Boustead Singapore requested it apply for an extension of time from the Singapore Exchange (SGX) to comply with Rule 724 of the Listing Manual – which states, among other things, that SGX may allow an issuer a period of three months to restore its public float, after which the issuer may be removed from the official list.

Boustead Projects said that Boustead Singapore is now “exploring various options”. But the company offered no hint in its announcement as to what these options are.

More importantly, it is still unclear what consequences the boards of Boustead Singapore and Boustead Projects and their paid advisers will face for their roles in the offer that led to the current mess.

This is not a matter for SGX to resolve alone. The entire regulatory firmament should get involved in determining how to manage corporate and market actors who choose to test rules and standards that have been clearly laid down.

When Boustead Singapore unveiled its offer for Boustead Projects on Feb 6, its stated intention was to delist Boustead Projects if the option to do so became available. But Boustead Singapore also said that it would not be able to avail itself of the powers of compulsory acquisition under the Companies Act.

The only way Boustead Singapore’s offer could lead to a delisting of Boustead Projects was if the offer was fair and reasonable, and Boustead Singapore obtained at least 75 per cent of the shares held by independent shareholders.

SGX made this clear in a Regulator’s Column in 2019 – emphasising that if these conditions are not met, the target company would remain listed and be required to restore its public float.

On Mar 13, Boustead Projects published a circular to its shareholders that revealed its appointed independent financial adviser (IFA), PrimePartners Corporate Finance, had found the offer was “not fair but reasonable”. By that time, Boustead Singapore had already received acceptances amounting to 4.33 per cent of Boustead Projects shares and purchased a further 7.62 per cent of Boustead Projects shares in the market.

This pushed Boustead Singapore’s stake in Boustead Projects to 86.82 per cent – just a hair below the 90 per cent threshold that would result in a suspension of trading in Boustead Projects’ shares.

Responding to queries from SGX on Mar 15, Boustead Projects warned that there might not be a public market for its shares following the close of the offer. But it also said this was not its fault, and there was nothing it could do about it.

Boustead Projects pointed out that it had no control over the offer price, the opinion of its appointed IFA, or the actions of its shareholders.

The company also highlighted that Boustead Singapore had already stated its intention to take it private – hence, Boustead Singapore was unlikely to support any initiative to expand Boustead Projects’ public float.

When the offer closed on Mar 27, Boustead Projects said that Boustead Singapore held 95.5 per cent of its shares. It also announced that trading of its shares would be suspended with effect from Mar 28.

Exit offer coming?

Given that Boustead Singapore is unlikely to support any effort to restore the public float of Boustead Projects, it should logically be required to make a fair and reasonable exit offer to the dissident shareholders of Boustead Projects.

SGX should lay out precisely how this should be done, keeping in mind that it is setting expectations for how it might handle similar cases in the future.

For instance, it seems sensible that Boustead Projects appoint PrimePartners once again as its IFA – as many investors might have relied on that latter’s views about the fairness and reasonableness of the offer. Indeed, PrimePartners should probably be required to opine on the new exit offer based on the work it has already done.

In particular, PrimePartners said that one key reason the offer for Boustead Projects was determined to be unfair was because the final offer price was not within its valuation range of S$1.17 to S$1.38 per share. Based on that view, an exit offer of at least S$1.17 per share – which is more than 23 per cent higher than the final offer price of S$0.95 per share – would probably pass muster.

Singapore’s market regulators should clear the way for this new exit offer to take place as soon as possible, even though Boustead Singapore has only just completed its offer for Boustead Projects. Investors who refused to accept the unfair offer should not be made to wait unnecessarily.

But what can SGX actually do to coax or otherwise coerce Boustead Singapore into making a fair and reasonable exit offer for Boustead Projects? And, what if the offeror were not a local public-listed company?

Would levying hefty ongoing fines on the target company for failing to restore its public float be effective? Should Singapore’s market regulators be prepared to drag an errant offeror to court?

Robust response required

When controlling shareholders attempt to take their companies private, their interests are naturally no longer aligned with those of minority shareholders. But Boustead Projects’ controlling shareholder appears to have also put itself at odds with SGX – by seemingly challenging the frontline regulator’s delisting rules.

This is a fight that SGX cannot afford to lose. Many minority shareholders of Boustead Projects may have held on to their shares in anticipation of a “fair and reasonable” exit offer.

On Mar 13, after it emerged that PrimePartners had found the offer for Boustead Projects to be “not fair but reasonable”, the Securities Investors Association (Singapore) advised investors to reject the deal and not fear that the company would be delisted.

If SGX does not manage to get Boustead Singapore to make a “fair and reasonable” exit offer for Boustead Projects or support the restoration of Boustead Projects’ public float, a lot of investors could be left in limbo.

It would also be a galling setback for SGX’s efforts to ensure that minority investors are properly compensated when public-listed companies are taken private.

This matter is arguably serious enough to warrant a broad response from Singapore’s market regulators. All corporate and market actors should be left with no doubt that there are grave consequences for failing to observe the spirit as well as the letter of Singapore’s market rules.

For Boustead Singapore, one simple way to sidestep the opprobrium likely to come its way is to quickly make the “fair and reasonable” exit offer for Boustead Projects that SGX rules require.