Boustead Singapore should also not be allowed to include the Boustead Projects shares held by Wong Fong Fui in its exit offer

 

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

 

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

 

Boustead Singapore&rsquo s lead independent director Mak Lye Mun said the company&rsquo 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 &ldquo all-or-nothing&rdquo outcome for Boustead Singapore.

 

Mak also pointed out that Boustead Singapore&rsquo s chairman and chief executive Wong Fong Fui owned nearly 20 per cent of Boustead Projects&rsquo 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 &ldquo element of surprise&rdquo in scooping up shares of Boustead Projects.

 

Responding to a separate question at the Jul 28 AGM on why Boustead Singapore&rsquo 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 &ldquo show your cards&rdquo 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 &ndash 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&rsquo 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&rsquo 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&rsquo 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 &ldquo provide updates&rdquo 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&rsquo 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&rsquo 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&rsquo 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&rsquo 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&rsquo 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 &ndash which develops industrial real estate &ndash 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&rsquo 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.

BOUSTEAD Singapore is seeking an extension from the Singapore Exchange Regulation (SGX RegCo) to allow it to provide details of its exit offer for Boustead Projects only after its first-half results have been released.

 

This comes a day after SGX RegCo issued a directive for the delisting of Boustead Projects, as the issuer has not ensured that at least 10 per cent of the total number of issued shares are held by the public.

 

In its notice of compliance, the frontline regulator also directed Boustead Projects and/or Boustead Singapore to make an exit offer to shareholders that is &ldquo fair and reasonable&rdquo , with the proposal to be provided within one month from Tuesday (Sep 26).

 

Boustead Singapore said in a bourse filing on Wednesday that both the company and Boustead Projects are required to announce their first-half results within 45 days from Sep 30, and it is &ldquo unable to provide an update at this juncture&rdquo . It did not indicate the duration of extension required.

 

Boustead Singapore in February announced a voluntary unconditional general offer to privatise its real estate unit, Boustead Projects. The independent financial adviser (IFA), PrimePartners Corporate Finance, opined that the offer was &ldquo not fair but reasonable&rdquo .

 

In its report, the IFA noted that the final offer price of S$0.95 was not within its final estimated valuation range of between S$1.17 and S$1.38.

 

At the close of the offer, Boustead Singapore and its concert parties owned or controlled an aggregate of 299.2 million shares, representing approximately 95.5 per cent of the total number of shares in the company.

 

As less than 10 per cent of Boustead Project shares were held by the public, the counter was suspended in March.

 

Boustead Singapore disclosed previously that it would not be able to avail itself to the powers of compulsory acquisition under the Companies Act.

 

Under section 215(1) of the Companies Act, an offeror who acquires at least 90 per cent of the total number of shares (other than those already held by the offeror, its related corporations or nominees) would be entitled to exercise the right to compulsorily acquire all the shares from shareholders who have not accepted the offer.

 

The offer for Boustead Projects did not extend to 19.28 per cent of the shares that were held through nominees by chairman and chief executive of Boustead Singapore, Wong Fong Fui.

 

SGX RegCo said in March that Boustead Projects must restore its free float after its shares are suspended at the close of the takeover offer by its parent company. Otherwise, Boustead Projects would be directed to delist and provide an exit offer which is deemed fair and reasonable by an IFA.

 

Under listing rules, exit offers in conjunction with voluntary delistings must not only be reasonable, but also fair. An offer is deemed fair if the price offered is equal to or greater than the value of the securities.

 

Boustead Projects was granted two extensions to explore options to comply with listing rules, but did not restore its free float by the Sep 26 deadline.

 

David Gerald, president and chief executive of the Securities Investors Association (Singapore), said on Tuesday that the association supports SGX RegCo&rsquo s actions. &ldquo Some six months have elapsed, and there has been no response from the Boustead companies,&rdquo he noted.

 

The Singapore Exchange Regulation (SGX RegCo) has issued a notice of compliance to Boustead Projects AVM 0.00% and its controlling shareholder Boustead Singapore F9D 0.00% following the former&rsquo s free float restoration deadline.

 

Boustead intends to privatise and delist Boustead Projects from the exchange, closing its privatisation offer on March 27. It was granted three months extension until June 26, followed by another three-months extension until Sept 26 to explore options to comply with the listing rules. 

 

As such, the exchange has directed the company to be delisted if its free float is not restored to at least 10% and it has to make a fair and reasonable exit offer to the shareholders.

 

The company must notify the exchange on its exit offer proposal no later than one month from Sept 26. Failure to comply with the requirements will be deemed to be a contravention of the listing rules, the exchange adds.

 

SIAS president and CEO David Gerald is supporting the exchange&rsquo s action, noting that there has been no response from the Boustead companies over the extension period.