SGX should not grant Boustead Singapore’s request for more time to comply with delisting order

WHEN Boustead Singapore held its annual general meeting (AGM) on Jul 28, a shareholder asked the company’s board and management if they had been “incorrectly advised” in attempting to privatise Boustead Projects through a voluntary unconditional cash offer rather than through a scheme of arrangement.

The startlingly candid response – as recorded in the minutes to the AGM – bears scrutiny by market regulators in their efforts to ensure minority investors are treated fairly under such deals.

Boustead Singapore’s lead independent director Mak Lye Mun said the company’s objective was to acquire as many shares of Boustead Projects as possible, at the lowest price possible. A scheme of arrangement, where shareholders of Boustead Projects would vote at an extraordinary general meeting (EGM) on whether to accept the deal, would have resulted in an “all-or-nothing” outcome for Boustead Singapore.

Mak also pointed out that Boustead Singapore’s chairman and chief executive Wong Fong Fui owned nearly 20 per cent of Boustead Projects’ shares. A scheme of arrangement would have required Boustead Singapore to hold an EGM to obtain approval from its own shareholders for the deal.

This, Mak said, would have resulted in Boustead Singapore losing the “element of surprise” in scooping up shares of Boustead Projects.

Responding to a separate question at the Jul 28 AGM on why Boustead Singapore’s offer did not extend to Boustead Projects shares held by Wong, Mak repeated that it would have required Boustead Singapore to obtain approval from its shareholders at an EGM.

If Boustead Singapore had done so, Mak said, it would “show your cards” and probably have resulted in the company not acquiring as many Boustead Projects shares as it did.

Minorities in limbo

When the voluntary unconditional cash offer for Boustead Projects closed on Mar 27, the offeror and its concert parties held almost 299.2 million Boustead Projects shares – equivalent to nearly 95.5 per cent of its total outstanding shares.

As Boustead Projects no longer had the minimum required public float of 10 per cent, trading in its shares was suspended. This left minority investors holding some 14.1 million shares of the company in limbo.

Boustead Singapore had said from the outset that it would not be able to avail itself of the powers of compulsory acquisition.

Boustead Projects’ independent financial adviser (IFA) had subsequently opined that the final offer price of S$0.95 (revised from the original S$0.90) per share was not fair, but reasonable.

In 2019, the Singapore Exchange (SGX) said it would generally allow a company that is the subject of a general offer to delist if the offer price was fair and reasonable, and the offeror had obtained at least 75 per cent of the shares held by independent shareholders.

SGX emphasised that if these conditions were not met, the company in question would remain listed.

Many minority shareholders of Boustead Projects may have decided to hold on to their shares because of SGX’s firmly stated position on this matter.

Indeed, the Securities Investors Association (Singapore) urged shareholders of Boustead Projects to reject the offer after the IFA’s opinion on the offer was made known.

Extensions of time

SGX initially gave Boustead Singapore and Boustead Projects three months until Jun 26 to sort out the mess. At the request of the companies, SGX subsequently granted a further extension to Sep 26.

When this extension expired last week, SGX issued a Notice of Compliance (NOC) directing Boustead Projects to delist and give its minority investors an exit offer that is fair and reasonable.

SGX told Boustead Singapore and Boustead Projects to come up with a proposal within one month from Sep 26.

The companies do not appear ready to immediately comply with the NOC, though. On Sep 27, Boustead Singapore said it would seek an extension of time from SGX to “provide updates” after its H1 FY2024 results have been released.

Boustead Singapore and Boustead Projects have Mar 31 financial year-ends, and are required to announce their half-year results within 45 days from Sep 30.

Why have the two companies not been able to resolve the matter after more than six months?

Mak said during Boustead Singapore’s recent AGM that the group had been trying to abide by two sets of rules. On the one hand, Boustead Projects is required under SGX’s Listing Rules to restore public float.

On the other hand, the Code on Take-overs and Mergers did not allow Boustead Singapore to make a better offer for Boustead Projects within six months of its last offer.

Mak went on to say that while any offer price for Boustead Projects has to be fair and reasonable, it also has to be in the interest of Boustead Singapore’s shareholders. He added that the situation is further complicated by the fact that Wong owns nearly 20 per cent of Boustead Projects.

Misaligned interests

The comments made by Mak at Boustead Singapore’s AGM plainly underscore how the interests of controlling shareholders and minority investors can become misaligned when publicly-listed companies do not garner healthy market valuations.

Instead of working to increase the market value of Boustead Projects’ shares, Boustead Singapore ended up plotting to acquire as many shares as possible in the hands of minority investors.

In case anyone has forgotten, the final offer price of S$0.95 per share for Boustead Projects – which develops industrial real estate – was nearly 25 per cent below its net asset value of S$1.265 per share as at Sep 30, 2022.

The IFA for Boustead Projects put the valuation range for its shares at between S$1.17 and S$1.38.

The way I see it, this potential misalignment of interests between controlling shareholders and minority investors in the Singapore market calls for a more dynamic and prescriptive regulatory approach.

In the case of Boustead Projects, regulators should have proactively cleared the way for an exit offer to be made much more quickly. And they certainly should not accede to Boustead Singapore’s request for more time to comply with the NOC from SGX.

If the rule that exit offers must be fair and reasonable is to mean anything, minority investors who choose to hold out in the face of a lowball offer should not suffer the risk of their shares being suspended for this long.

Regulators should also ensure that Boustead Singapore does not muddy the waters by including the Boustead Projects shares held by Wong in its exit offer. Adding Wong to the equation may only lead to resistance from minority shareholders of Boustead Singapore in coming up with an exit offer for minority shareholders of Boustead Projects that is fair and reasonable.