Investor interest in F&N, Frasers Property could be shaped by aftermath of OCBC’s offer for Great Eastern

THE manner in which the looming trading suspension of Great Eastern is resolved could shape the attitude of investors towards other tightly owned and deeply undervalued blue-chip companies.

Among them are beverage maker Fraser and Neave (F&N) and its sister company Frasers Property (FPL).

Thai billionaire Charoen Sirivadhanabhakdi owns about 87 per cent of both companies through various entities, including Thai Beverage. F&N and FPL’s most recent annual reports put their free floats at just 12 per cent and 11 per cent, respectively.

Both companies have seen the market value of their shares languish for years, despite steady execution of various growth strategies.

FPL owns some S$35 billion worth of properties, including residential developments, commercial buildings and business parks, shopping malls, industrial and logistics assets, and hospitality properties.

The group has three locally listed property trusts in its fold, two of which – Frasers Centrepoint Trust and Frasers Logistics & Commercial Trust – are components of the Straits Times Index.

FPL has also benefited from the support of its controlling shareholders in recent years – notably, they stumped up more than S$1.1 billion in 2021 to support a rights issue that FPL called to expand its portfolio of industrial, logistics and business park assets.

Yet, FPL shares have delivered a total return (with dividends reinvested) of minus 54.7 per cent over the five years to Jun 30. FPL is currently trading 67.8 per cent below its net asset value (NAV) as at Mar 31 of S$2.44 per share.

F&N has also struggled to gain an investor following, despite having a stable of well-established soft drinks and milk brands, and investing steadily in new businesses and production facilities around the region.

The group’s stronger financial results recently have also not impressed the market. For the six months to Mar 31, F&N reported a 52.5 per cent rise in earnings to S$83.8 million on a 2.5 per cent increase in revenue to S$1.07 billion.

The company said that the higher earnings were the result of stronger sales and better margins at its dairy and beverage businesses, despite unfavourable foreign exchange movements.

During the five years to Jun 30, F&N shares chalked up a total return of minus 26 per cent. F&N is now trading at just over 11.3 times its FY2023 earnings of 9.2 cents per share, and 47.5 per cent below its book value as at Mar 31 of S$1.98 per share. (F&N and FPL have Sep 30 financial year-ends).

The low market valuation of F&N shares is all the more stark when compared to the Kuala Lumpur-listed shares of F&N Holdings Berhad, the group’s 55.5-per cent owned Malaysian unit that holds a major portion of its businesses.

The Malaysian unit is currently trading at 21.7 times its FY2023 earnings of RM1.465 per share, and more than 3.3 times its NAV as at Mar 31 of RM9.56 per share.

In fact, the market value of F&N’s 55.5 per cent stake in its Malaysian unit is now more than 20 per cent larger than its own market capitalisation.

Why have FPL and F&N been unable to garner decent market valuations?

The obvious answer is that their businesses simply do not excite investors in the public market.

A contributing factor, however, may be that their narrow free floats put minority investors at risk of being squeezed out by a lowball take-private offer.

The rules on voluntary delistings have been tightened in recent years to protect minority investors. In particular, companies that are the subject of a general offer cannot delist unless the offer is “fair and reasonable”, and the offeror has obtained at least 75 per cent of the shares held by independent shareholders.

The “fair and reasonable” condition tends to receive a lot of attention, because it directly relates to the offer price. However, the 75 per cent acceptance condition could be important in cases involving companies with narrow free floats, as it enables dissident minority shareholders with relatively small stakes to block the companies from delisting.

The narrow free floats of F&N and FPL, for instance, mean that minority shareholders with a roughly 3.3 per cent stake could prevent them from meeting the 75 per cent acceptance condition.

On the other hand, companies with narrow free floats that are the subject of general offers face a high risk of breaching the minimum free float requirement and being suspended, even when the requisite conditions for a delisting are not met.

The sticking point here is not just that the company’s shares could be untradeable for a long period of time, but that it is unclear how long a period of time investors could be stuck.

The aftermath of OCBC’s offer for Great Eastern could provide some clarity.

The offer at S$25.60 per share has already failed to satisfy the “fair and reasonable” condition for a delisting, and it is not expected to satisfy the 75 per cent acceptance condition either.

Yet, Great Eastern’s free float has already fallen below 10 per cent – which means its shares will be suspended after the offer closes on Jul 12.

Great Eastern will then either have to restore its free float, or meet the necessary conditions for a voluntary delisting.

The speed and efficiency with which either of these outcomes is reached could go some way in lifting investor interest in stocks like FPL and F&N – or not.

The writer owns shares in Fraser and Neave