In recent times, there has been a wave of listed companies that have either delisted, or are currently in the midst of seeking delisting/privatization from SGX.
The most recent company in the news currently is Eu Yan Sang. The delisting offer of $0.60 comes from Righteous Crane Holding, a consortium that includes Temasek Holdings, Tower Capital and the investment arm of UOB.
The offer price represents premiums of about 17 per cent and 25 per cent to the volume-weighted average price per share for the three- and six-month periods up to May 9 – the last full trading day before the offer.
This is quoted from a news article:
“The offer is also significantly higher than analysts’ target price range of 30 cents to 36 cents per share.”
Well, I dont really care too much about what analysts think. In my experience, it’s a huge mistake to attach much weight to what they say. I can find many instances when these analysts were wrong on multiple occasions, then eventually just simply put out a “cease coverage” news on the company and move on.
Here’s the price history of Eu Yan Sang:
As seen in the chart above, if you were one of the earlier shareholders who bought the shares before 2011, chances are this investment has been profitable, of course in varying degrees.
However, if you’d bought shares in the past 5 years (2011-2016), which I suspect is a very substantial part of the shareholder base, chances are that you’d be staring at a loss, in some instances of >20%! Of course, this is excluding dividends, so the dividends may help to negate the loss a bit but everyone agrees this would hardly be considered a stellar investment.
Of course, looking at the short term, (from 2015 to present), the $0.60 looks attractive, but it’s a mirage if you look at the big picture.
Interestingly, at the time of writing this, the share price (currently $0.63) is ABOVE the offer price of $0.6, indicating that the market, and the other shareholders think the offer price may be raised. This is despite the offer document stating explicitly that the “offerer does not intend to revise the offer price.”
But this post is not about Eu Yan Sang. I have never been a shareholder and have not done any analysis about the financials of this company. Rather, I am observing the trend of delistings in recent months/years.
The stated reason for delisting, given by Eu Yan Sang, is pretty generic:
- Low Trading Liquidity of Shares
- Compliance Costs of Maintaining Listing
- Greater Management Flexibility
Almost all delistings talk about the same things. Sure, these are somewhat valid, but these are also considerations during listing isn’t it? Why the sudden need to delist? None of these factors are new. (although for some companies with lower share prices, the MTP requirement adds uncertainty and compliance costs)
Rather, I think the real reason for so many companies to delist now is simply because it makes good economical sense (for the offerors and the major shareholders involved) to do so.
The general market has fallen substantially as seen in the STI. Credit is still cheap and easily available. Many institutional investors (like in the case of Eu Yan Sang) who are cash rich and have deep pockets, or cash rich management, can now take advantage of this cheap credit and depressed share price environment to delist the companies on the cheap, and possibly even relist in the future, either here or overseas.
As long as the return on equity generated by the company exceeds that of the cost of financing credit, one can even do a leveraged buy out. Use the bank’s money to buy out the company, and then use the returns on the equity of the company to pay off the costs of the loan and whatever remains is for the shareholders of the now private company. This is similar to what the Glazers family did to Manchester United FC several years back.
Some of the other companies that have delisted or are delisting in recent times include Tiger Airways, Osim International, Popular Holdings, SC Global, Asia Pacific Breweries and CK Tang.
On a somewhat related note, this is the reason why I do not buy into IPOs. As Buffett has mentioned before, the entire IPO process revolves around getting as high a valuation as possible for the listing. It is hard to find good value in such an environment.