Sias needs to play hardball to help minority investors fend off lowball offers

LESS than one week after the Securities Investors Association (Singapore), or Sias, called for the offer price for Boustead Projects to be raised, the advocate for public shareholder rights seemed to get its way.

On Feb 22, Boustead Singapore said it would raise its offer price for Boustead Projects from S$0.90 to S$0.95.

Yet, the offer price hike is unlikely to have satisfied long-term shareholders of Boustead Projects. By the time Boustead Singapore hiked its offer price, shares in Boustead Projects were trading at S$0.99 – suggesting widespread speculation that the offer price would be raised by much more.

Sias had said in its letter to Boustead Singapore on Feb 16 that an offer price for Boustead Projects on a par with the industrial property developer’s net asset value (NAV) would have been “clearly justified”.

Boustead Projects reported an NAV of S$1.265 per share as at Sep 30, 2022. Brokerage firm CGS-CIMB said in a report on Feb 6 that its estimated revalued NAV (RNAV) for Boustead Projects was S$1.79 per share.

Compared with Boustead Projects’ reported NAV and estimates of its RNAV, the current offer price of S$0.95 per share – which Boustead Singapore has said is final – is not much less derisive than the initial offer price of S$0.90.

Sias has also recently appealed to Golden Energy and Resources (Gear) to improve the terms of its proposed break-up and delisting.

Under the deal announced on Nov 9, shareholders of Gear can opt for an all-cash consideration of S$0.846 per share.

Some analysts and investors have said this is well short of the value of Gear’s assets – which include a 64 per cent stake in Stanmore Resources, an Australia-listed metallurgical coal producer that has rocketed in value recently.

Sias said in a letter to Gear on Feb 28 that the company’s shareholders ought to be paid more, given the steep run-up in Stanmore’s share price since Nov 9.

But Gear has provided no indication that it will consider improving the deal.

In an announcement on Mar 3, the company simply acknowledged the “various media reports and commentaries in recent days” and said it is working through the process of formally putting the transaction before its shareholders.

Gear closed at S$0.87 on Monday (Mar 6), down 3.8 per cent from its Mar 3 close of S$0.905.

Given the responses from Boustead Singapore and Gear, it could be time for Sias to change its approach in advocating for better deals for minority investors.

Instead of pleading with controlling shareholders and the boards of companies for improved terms, Sias should focus on rallying minority investors to reject offers that are plainly inadequate.

Controlling shareholders will not pay more than necessary to clear the 90 per cent threshold, beyond which all other minority investors are effectively forced to throw in the towel. By providing leadership and a rallying point for minority investors, Sias could be a potent force in shifting the 90 per cent-threshold-clearing price in their favour.

On Boustead Projects, Sias could begin by pointing out that the company’s shares were trading above S$0.95 only 10 months ago. On behalf of minority investors, Sias could ask the board of Boustead Projects to explain how the fundamentals of the company could have deteriorated in such a short space of time that an offer at S$0.95 per share now makes sense to them.

On Gear, Sias could respond to the company’s Mar 3 announcement by pointing out that the board is wasting time and money trying to meet the conditions for a transaction that many shareholders will probably reject if Stanmore continues to rally.

Sias could suggest that the board of Gear considers implementing only the proposed distribution in-specie of its 62.5 per cent stake in Indonesia-listed Golden Energy Mines (Gems), and abandon the subsequent exit offer for Gear at S$0.16 per share.

This would cut Gear’s exposure to the thermal coal business conducted by Gems, which is said to be facing environmental, social and governance pressures. But Gear would remain a listed company – holding a 64 per cent stake in metallurgical coal producer Stanmore and a 50 per cent stake in gold miner Ravenswood Gold Group.

If the “various media reports and commentaries” that Gear mentioned in its Mar 3 announcement are right, its stock should trade substantially above S$0.16.

Would Sias be abandoning its famously non-adversarial approach by going down this road? Maybe. But that would only be because controlling shareholders put themselves in an adversarial position with minority investors when they attempt to take their companies private.

In these situations, Sias has to stay firmly on the side of minority investors.

The writer owns shares in Golden Energy and Resources.