While the IFA has said the offer is not fair but reasonable, its estimated range of values for Sinarmas Land shares is not much higher than the current offer price

 

SINCE this column broached the topic of the lowball offer for Sinarmas Land five weeks ago, there have been two important developments.

 

After the market closed on Apr 23, it was announced that the offeror had received valid acceptances amounting to nearly 936.3 million shares, representing 22 per cent of Sinarmas Land&rsquo s total number of shares.

 

This increased the number of shares held by the offeror to more than 3.9 billion, representing a 92.3 per cent stake in the company. The offeror is a company called Lyon Investments, which is ultimately owned by a trust linked to Indonesia&rsquo s Widjaja family.

 

What could buyers of Sinarmas Land shares have been anticipating? On Apr 25, the independent financial adviser (IFA) appointed by Sinarmas Land, a firm called W Capital Markets, described the offer as not fair but reasonable.

 

This means the offeror will not be able to take Sinarmas Land private unless it manages to breach the 90 per cent acceptance threshold, which would mean raising its stake to more than 97 per cent by the close of the offer.

 

The way I see it, there is now a fairly high chance that the offeror will raise its offer price.

 

Delisting conditions within reach

Two conditions need to be satisfied in order for Sinarmas Land to voluntarily delist in conjunction with the current offer. Its IFA must opine that the offer is both fair and reasonable, and the offeror must achieve an acceptance rate of at least 75 per cent.

 

With 936.3 million shares already in the bag, the offeror is now just a hair&rsquo s breadth away from achieving the 75 per cent acceptance condition.

 

By my calculations, the offeror would need to receive further acceptances amounting to only 11.7 million shares to cross the line. This would put its stake in Sinarmas Land at 92.6 per cent, up from the 92.3 per cent reported on Apr 23.

 

Sinarmas Land&rsquo s IFA also indicated in its letter to the company&rsquo s board that the offer currently on the table is not all that far away from being considered fair as well as reasonable.

 

The IFA estimated a range of values for Sinarmas Land shares of between S$0.35 and S$0.361. The bottom end of this range is only 12.9 per cent above the current offer price.

 

Raising the offer price for Sinarmas Land to S$0.35 a share would cost the offeror some S$50.6 million more, but it would also spur the rate of acceptances, and almost certainly result in the two key conditions for a clean delisting of the company being satisfied.

 

There is no certainty the offeror will improve its offer price, of course. Yet, the current offer price for Sinarmas Land seems rather stingy, even by the standards of a market where lowball offers are commonplace.

 

For instance, the offer price for Sinarmas Land was only 0.5 per cent above its volume weighted average price (VWAP) during the six-month period before the offer announcement. The offer prices for Singapore-listed property companies in precedent transactions going back to the beginning of 2022 were between 17.6 per cent and 77.5 per cent above their six-month VWAPs.

 

More significantly, the offer price for Sinarmas Land is just 0.36 times its net asset value (NAV) as at end-2024 of S$0.85 per share (excluding non-controlling interests). The offer prices for locally listed property companies in precedent transactions since 2022 ranged between 1.4 times and 0.76 times NAV.

 

Even if the offer price for Sinarmas Land were increased to S$0.35 per share, it would still be only 0.41 times NAV &ndash significantly below the range of precedent transactions for Singapore-listed property companies.

 

Incorrect valuation basis

To be clear, I am not suggesting that minority shareholders of Sinarmas Land should be happy accepting an offer of S$0.35 per share. In fact, I would argue the IFA&rsquo s estimated range of values for Sinarmas Land shares of S$0.35 to S$0.361 is way off the mark.

 

This column has previously said that IFAs tasked with evaluating take-private transactions focus too much on comparing the valuations implied by the offer price with the public-market valuations of similar companies, and on the valuations garnered by public-listed companies in precedent take-private deals.

 

The IFAs tend to ignore how the basis of valuation might change once the target company is taken private. This was certainly the case with Sinarmas Land&rsquo s IFA, which used a sum-of-the-parts (SOTP) model to come up with its range of values for the company&rsquo s shares.

 

Here is what the IFA did: Sinarmas Land&rsquo s stakes in Jakarta-listed Bumi Serpong Damai Tbk (BSDE) and Puradelta Lestari Tbk &ndash through which the bulk of its businesses are held &ndash were valued at their one-month VWAPs.

 

For Sinarmas Land&rsquo s unlisted businesses, the IFA worked out their revalued NAVs (RNAVs) and then applied the mean and median discounts at which precedent take-private deals had been done. The mean P/RNAV implied by the offer price in these precedent transactions was 0.64 times, while the median P/RNAV was 0.63 times.

 

Then, the IFA applied holding company discounts of 20 per cent and 22 per cent to the sum of these various parts to arrive at the seemingly precise S$0.35 to $0.361 range of values.

 

In reality, the components of Sinarmas Land could fetch prices in the private market that are well above the valuations implied by their public-listed holding companies. This column previously pointed out that BSDE agreed last year to buy a 91.99 per cent stake in Suryamas Dutamakmur Tbk (SMDM) that was well above its NAV at the time.

 

The seller of SMDM was Top Global &ndash another company linked to the Widjaja family, which was itself taken private in 2021 at a fraction of its NAV.

 

By accepting the Widjaja family&rsquo s lowball offer for Sinarmas Land, the company&rsquo s remaining minority shareholders will be excluding themselves from participating in any future value unlocking at the group. But if the offer price is raised enough to satisfy the conditions for a voluntary delisting, many of them won&rsquo t really have a choice.

 

W Capital Markets, the independent financial adviser for the privatisation of Sinarmas Land , is of the view that the 31 cents per share offer tabled on March 27 is not fair but reasonable.

 

Sinarmas Land is controlled by Indonesia' s Widjaja family, whose other listed entity here on the SGX is palm oil company Golden Agri-Resources . The Widjaja family back in 2023 privatised their coal mining company Golden Energy and Resources .

 

On one hand, W Capital Markets points out that the offer price of 31 cents per share is a P/NAV ratio of approximately 0.364 times, or a discount of 63.6% to the NAV per share.

 

W Capital Markets notes that Sinarmas Land shares had historically been trading at below its NAV per share with an average P/NAV of 0.263 times for the 36-month period prior to the offer.

 

Comparable Indonesian companies trade at between 0.16 times to 7.50 times NAV, and is higher than the median but below the mean P/NAV of comparable Indonesian compaines' 0.35 times and 0.41 times respectively.

 

Singapore comparable companies, on the other hand, trade at between 0.24 times to 0.58 times. At 0.36 times P/NAV, the offer is above the median but lower than the mean P/NAV of comparable Singapore companies' 0.33 times and 0.37 times respectively.

 

When gauged in terms of the earning-based valuation multiples, the EV/EBITDA of Sinarmas Land as implied by the offer price of 31 cents is 4.8 times and is within the range of both Indonesia and Singapore listed comparables.

 

This measure is the same as the mean but lower than the median EV/EBITDA of comparable Indonesian companies but below the mean and median EV/EBITDA of comparable Singapore companies.

 

The adjusted PER of Sinarmas Land, as implied by the offer price of 31 cents, is 5.3 times, and is above both the mean and median TTM P/E of comparable Indonesian companies and below the range of the TTM P/E ratios of comparable Singapore companies.

 

W Capital Markets, using a sum-of-the-parts valuation methodology, figures that Sinarmas Land is worth between 35 and 36.1 cents per share, higher than the 31 cents offer.

 

As such, W Capital Market is of the view that this offer is " not fair" .

 

However, W Capital Markets notes that the offer price is at a premium of approximately 16.5%, 0.5%, 5.6% and 17.1% to the volume-weighted average price of Sinarmas Land shares for the 12-month, 6-month, 3-month and 1-month periods prior to the offer.

 

The IFA points out that for the 12-month period prior to the offer being announced, Sinarmas Land shares were traded on 243 market days out of a total of 250 market days, and that the average daily trading volume was just 0.55 million shares, equivalent to just 0.04% of the free float.

 

" Accordingly, the offer represents an exit opportunity for shareholders, given the low trading liquidity," to sell without incurring transaction costs.

 

Sinarmas Land in its FY2024 earnings announcement, says W Capital Markets, has warned that the global economic outlook has " weakened significantly" due to US tariffs.

 

" These intensified global trade frictions, worsened by escalating geopolitical tensions, volatile energy prices, and rising protectionism have heightened fears of a worldwide recession.

 

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" These dynamics are expected to suppress global consumption, inflate costs, disrupt cross-border investment flows and negatively impact the group' s businesses in FY2025 and beyond," says Sinarmas Land.

 

The IFA notes that there' s no competing offer other than that already tabled by the Widjajas, whom already control more than 70.3% of the shares.

 

" The likelihood of competing offers is remote," says W Capital Markets. " After having carefully considered the factors above, we are of the opinion that the offer is ' reasonable' ."

The offer by Lyon Investments receives valid acceptances bringing its ownership to 92.3% of shares

 

[SINGAPORE] Shares of Sinarmas Land that are held by the public no longer make up 10 per cent of shares outstanding, following a privatisation offer by Lyon Investments receiving valid acceptances that will bring its ownership to 92.3 per cent of shares.

 

Due to the Singapore Exchange&rsquo s (SGX) requirement for companies to ensure that at least 10 per cent of their total shares outstanding to be held in public hands, known as the free float requirement, Sinarmas Land&rsquo s shares may be suspended by the exchange, the company announced on Wednesday (Apr 23).

 

The offer, made by the Widjaja family-controlled Lyon Investments on Mar 27, sought to purchase shares of Sinarmas Land it does not own at S$0.31 apiece.

 

Already owning 70.3 per cent of the property development company&rsquo s shares, the offeror has received valid acceptances of about 22 per cent of total shares, the company said in the bourse filing. This brings shares owned, controlled or agreed to be acquired by the offeror to 92.3 per cent, the company said.

 

Lyon Investments counts as its sole director Margaretha Natalia Widjaja, who is also an executive director of Sinarmas Land. The company is owned by a trust linked to the Widjaja family, who operates the conglomerate Sinar Mas.

 

Explaining its move to delist Sinarmas Land from the SGX mainboard, the offeror had previously said that trading liquidity of the shares on the bourse in the past year has generally been thin, and that the offer allows shareholders to &ldquo realise a clean cash exit at a premium&rdquo .

 

Following the announcement of the offer, the company&rsquo s shares soared 23.6 per cent or S$0.065 to S$0.34 the following day on Mar 28.

 

The offer price of S$0.31 represents a 12.7 per cent premium over Sinarmas Land&rsquo s last traded price of S$0.275 on Mar 24, prior to the announcement.

 

It also represents a premium of about 17.1, 5.6 and 14.6 per cent over the volume-weighted average price of the shares over the last one, three and 12-month periods, respectively.

 

Sinarmas Land minorities should be incensed by lowball offer from its controlling shareholder

However, the offer price is at a 73.9 per cent discount to Sinarmas Land&rsquo s net asset value of S$1.19 per share as at Jun 30, 2024.

 

Lyon Investments has said that it does not intend to take steps to restore the free float, or for the trading suspension to be lifted. The company noted that the offer will remain open for acceptance until May 14.