W Capital Markets also rejects Sias&rsquo charge that it double-discounted asset values

 

[SINGAPORE] W Capital Markets, which is advising Sinarmas Land&rsquo s : A26 0%independent directors on the Widjajas&rsquo offer to privatise the company, insists its valuations of the group&rsquo s assets are &ldquo appropriate&rdquo and &ldquo consistent with widely accepted industry practice&rdquo .

 

The independent financial adviser (IFA) was responding to concerns raised by the Singapore Investors Association (Singapore) or Sias, and The Business Times columnist Ben Paul in his Mark to Market column.

 

Both parties had argued that IFA&rsquo s valuation range for Sinarmas Land shares was undervalued.

 

In a letter addressed to Sinarmas&rsquo independent directors on Monday, W Capital said it &ldquo categorically refutes&rdquo these suggestions and that it had adopted the most appropriate methods in line with conventional industry practice by other IFAs in Singapore.

 

It had earlier said the offer from Widjaja-family linked Lyon Investments was &ldquo not fair but reasonable&rdquo , estimating a fair value range of S$0.35 to S$0.361 per share, derived from a sum-of-the-parts (SOTP) analysis of the company&rsquo s listed and unlisted assets.

 

BT columnist Ben Paul had questioned the IFA&rsquo s fair value and whether its valuations captured the full potential of Sinarmas Land&rsquo s components, noting that the company&rsquo s assets could likely fetch prices in the private market that are &ldquo well above the valuations implied by their public-listed holding companies&rdquo .

 

In response, W Capital Markets said the SOTP method was appropriate given Sinarmas Land&rsquo s nature as a pure investment holding company, with no direct control over the assets held by the company&rsquo s listed subsidiaries that operate under separate management teams.

 

On the view that IFAs tend to ignore how the basis of valuation might change once a target company is taken private, W Capitals said its role was not to speculate on and assess private market valuation frameworks that may alter a company&rsquo s value after a delisting.

 

&ldquo Our adopted yardsticks for assessment do not deviate from conventional industry practice taken by other IFAs in Singapore,&rdquo the firm said.

 

Sinarmas Land offer price may be hiked

Sias had charged that the IFA&rsquo s valuation had &ldquo double-discounted&rdquo Sinarmas Land&rsquo s unlisted assets, both in its SOTP analysis, which valued the assets at a 37 per cent discount to its revalued net asset value (RNAV), as well as applying a &ldquo holding company discount&rdquo of 20 to 22 per cent to its valuation.

 

The IFA responded that the company&rsquo s RNAV may not reflect fair value, as it does not account for additional costs including professional fees, liquidation costs or regulatory requirements, which could all reduce the realisable RNAV.

 

It noted that comparable companies and past Singapore Exchange privatisations have typically been priced below net asset value and, in such cases, were deemed to be fair and reasonable by IFAs.

 

As for the holding company discount, it said such methods are commonly applied to reflect the market perception of risks involved in owning a holding company. Corporate expenses, tax implications from dividends and investors&rsquo limited control over subsidiaries could also be the basis for such discounts, the IFA said.

 

&ldquo We strongly disagree with Sias&rsquo view that there is double discounting,&rdquo said Wayne Lee, chairman and chief executive officer of W Capital Markets, arguing that the holding company discount is conceptually distinct from the SOTP methodology.