Investor watchdog says offer of S$0.31 per share undervalues company&rsquo s net assets through &lsquo double discount&rsquo

 

[SINGAPORE] David Gerald, the president of Securities Investors Association (Singapore), or Sias, has criticised the offer for Sinarmas Land : A26 +1.59% by the Widjaja family-linked Lyon Investments as &ldquo exploitative&rdquo , urging the offeror to revise the bid to more fairly reflect the company&rsquo s net asset value (NAV).

 

In a statement on Monday (May 5), Gerald said that Sias &ldquo strongly disagrees&rdquo with the independent directors&rsquo recommendation for shareholders to accept the offer. The retail investor advocacy group said that the S$0.31 offer price represents a steep 63.6 per cent discount to Sinarmas Land&rsquo s NAV per share of S$0.851 as at end-2024.

 

W Capital Markets, the independent financial adviser (IFA) appointed by Sinarmas Land, described the offer as not fair but reasonable, based on its assessment of a S$0.35 to S$0.361 per share fair value. This valuation had taken into account the market value of Sinarmas&rsquo stakes in listed subsidiaries Bumi Serpong Damai and Puradelta Lestari on the Indonesia Stock Exchange, as well as its remaining unlisted assets.

 

The IFA had applied a 20 to 22 per cent &ldquo holding company discount&rdquo to the company&rsquo s unlisted assets to assess its fair value, which Gerald said was &ldquo an assumption which can be questioned&rdquo .

 

Yet more concerning to Sias about the IFA&rsquo s &ldquo not fair&rdquo assessment was the manner in which the company&rsquo s unlisted assets were valued, the statement said. Carried at S$972.5 million on the balance sheet and revalued to S$1.2 billion, the assets were valued at S$757.9 million in the IFA&rsquo s sum-of-the-parts analysis. This represented a 37 per cent discount to the revalued NAV of the assets, upon which the aforementioned &ldquo holding company discount&rdquo was then applied.

 

&ldquo In our judicial system, appeal mechanisms are a fundamental safeguard yet, in the takeover process there appears to be no recourse for minority shareholders to challenge the IFA&rsquo s conclusions, no matter how debatable,&rdquo Gerald said, noting that the company&rsquo s unlisted assets had been &ldquo double-discounted&rdquo .

 

&ldquo Removing these discounts could increase the fair value by as much as 10.5 cents per share,&rdquo he added.

 

Sias also questioned the speed at which shareholders tendered their shares. The offeror had received valid acceptances of about 22 per cent of issued shares before the release of the IFA&rsquo s opinion or the board&rsquo s recommendation that shareholders accept the offer. This was despite the company&rsquo s market price trading higher than the offer price since the announcement, Sias said.

 

&ldquo Given that the free float was only 29.62 per cent, the valid acceptance of 74 per cent (of publicly held shares) is striking,&rdquo Gerald said. The most recently published shareholding statistics showed no other substantial shareholder apart from entities related to the Widjaja family, Sias noted.

 

Lyon Investments has said it does not intend to preserve the listing status or take steps to restore the public float. The offer remains open until May 14, after which compulsory acquisition may proceed under Section 215 of the Companies Act.

 

Still, Singapore Exchange listing rules require delisting offers to be both &ldquo fair&rdquo and &ldquo reasonable&rdquo , and approved by 75 per cent of independent shareholders at an extraordinary general meeting. &ldquo Minority investors can take some comfort in knowing (this),&rdquo added Gerald.

 

Yet, minority shareholders who choose to wait instead of tendering could face prolonged illiquidity. &ldquo They need to have sufficient holding power and understand there is no assurance any future exit offer will exceed the current one,&rdquo Gerald flagged.

 

&ldquo Sias calls upon the offeror to make a revised offer that is fair, reasonable and closer to the NAV per share of S$0.851.&rdquo