In 2022, the Singapore Exchange (SGX) might have set an uneasy record, with 21 companies having completed their delisting, attempted to delist, or are in the process of delisting. In contrast, 13 companies made their listing debuts, including three secondary listings of entities already quoted in other exchanges.
Christopher Wong, Singapore head of assurance at Ernst & Young, says several factors lead companies to decide whether to list or delist. Some of these factors include macroeconomic factors, corporate strategic imperatives, an abundance of liquidity, alternative funding sources, valuations and the needs and purposes of being a public company.
“Priorities change in a company’s life cycle — growth, transformation and expansion is still very much on the agenda, but there are many ways to get there, and tapping the capital markets is a viable option,” says Wong.
He points out that while several companies seek to go private today, the market has also seen a few corporate listings in a different and enhanced form.
For example, private nursing home operator Econ Healthcare was listed on SGX in 2002 and delisted in 2012 following a 28 cents per share offer by executive chairman and group CEO Ong Chu Poh in conjunction with Swedish fund EQT Private Equity. It relisted in April 2021 to raise funds for the group’s expansion in China.
Since its relisting, shares in Econ Healthcare were trading 53.7% lower at 19 cents on Dec 13, giving it a market capitalisation of $48.8 million and a P/E of 121.8x.
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Hope from a different place
Meanwhile, some companies delist to seek funds from other avenues as seen in previous years when Singapore-listed companies shifted to other exchanges, especially Hong Kong.
“There are many options and alternatives, such as private capital and alternative listing venues, and there is never a one-size-fits-all solution in one’s bid to raise funds for growth and success. In particular, the significant scale of private capital in recent years has offered many growth companies access to funds which were not as readily available in the past and at lower compliance cost,” notes Wong.
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Saurabh Gupta, head of investment banking at Maybank Securities Singapore, also notes that the private equity space has been more attractive lately. “In recent years, several private equity funds have raised a large amount of capital that they hope to deploy in Asia. Private equity dry power targeting Asia Pacific investments has more than doubled over the last five years to hit record highs. Hence private capital raise is becoming a viable alternative for companies to raise funding and grow further before an eventual IPO,” says Gupta.
Gupta adds that current macroeconomic headwinds could be another factor responsible for the spate of privatisation deals happening this year. He says: “The various rounds of interest rate hikes and fears of a potential economic slowdown have resulted in significant fund outflows from global public markets leading to a decline in the share prices of listed companies. This has encouraged privatisations led by existing shareholders and new investors looking for an attractive entry price into many such companies.”
The outlook of heightened inflation and interest rates, coupled with an economic slowdown, has also dampened investor interest, notes Gupta, as companies across sectors are expected to experience a slowdown in growth and contraction in margins.
This could be why the market is seeing more privatisation attempts from Catalist-listed stocks with lower market capitalisation. “This concern and, consequently, the valuation impact is amplified for smaller companies which may not have a large balance sheet or sufficient profitability margins to cushion against a dislocation in the operating environment. Hence, companies in this category are more likely to be a target for privatisations in the near term,” says Gupta.
Tan Kian Tong, partner of corporate finance at SAC Capital, says different companies delist for different reasons but the most common reason is that the offeror — who are most often the controlling shareholders of the company — still believes in the long-term value of the company and business.
However, unlocking such values will require the company to restructure or reorganise, which can take a long time and see investments with minimal near-term payoffs. “As such, privatisation of the company will provide greater management flexibility and time for the company to focus on their long-term growth or turnaround plans, which may differ from the demand of public capital markets which generally remains more short-term in nature,” says Tan.
In the case of Singhayi Group, which was taken off the market earlier this year by controlling shareholders Gordon Tang and his wife Celine Tang, the reason they cited was to have more flexibility to manage the business of the company and its subsidiaries, optimise the use of its management and resources, and facilitate the implementation of any operational change. On Nov 24, the Tangs launched another privatisation offer for another listed company they control, Chip Eng Seng Corp. As at Dec 14, the couple has gained control over 52.34% of the shares and the offer has turned unconditional. Similar explanations have been cited by the other companies privatised this year.
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Will not be missed
Even as the privatisation trend is expected to continue, one thing is for certain — most of the companies privatised will not be missed.
Several have seen low trading volumes for many years, indicating there was little investor interest in trading the stocks (chart 1). Anecdotally, even seasoned market professionals struggled to recall the businesses some of these companies being privatised were dabbling in, given their extended low profile.
Unfortunately, keeping a low profile and staying illiquid often means investors won’t give these companies a fair value. “Companies with low trading volumes generally trade at lower valuations than their larger listed peers. Given the low liquidity, public markets also do not provide an avenue for the larger shareholders to monetise their stakes in the business and hence there is a greater motivation to consider privatisation,” says Maybank’s Gupta.
Most companies that announced a privatisation offer have stated that the offer price represents a “unique cash exit opportunity” for shareholders, which may otherwise not be readily available due to the low trading volume of its shares.
Gupta also points out that small- and midcap companies typically have lower trading volumes. Add to that the current recessionary environment and the companies become more vulnerable to market volatility, which is also a contributing factor to the large number of privatisations seen.
Of the 21 delistings on the SGX this year, 10 were from the mainboard — 11, if the failed privatisation of Frasers Hospitality Trust was included — while 10 were from the Catalist Board.
Matthias Chan, head of equities research at SAC Capital, is aware of the large part of shares being held by a significant shareholder, which could be the reason for the overall low trading volume of the stock, apart from the lack of corporate profiling and engagement with investors.
“There are many undervalued stocks that are under the radar of investors for various reasons. Small stocks tend to lack engagement with the market as owners prefer to keep corporate costs as low as possible. Bigger stock companies have better resources to maintain regular communications with the market,” says Chan.
“While low trading volume could be one of the reasons for privatising the company, it is more likely that the company does not need new equity or funds from the public market,” he adds.
However, this past year has seen a few prominent names unlist, including Singapore Press Holdings. The former media and property group, which for years kept shareholders happy with generous dividends, finally gave in to structural changes in the media landscape. The government intervened directly, restructuring the loss-making media business into a so-called company limited by guarantee.
The good and valuable property parts became the bidding target between two government-linked groups — one led by Mapletree Investments and the other led by Keppel Corp. The Mapletree consortium, with a slightly more attractive cash offer, prevailed. Thus ended the company that published the newspaper that gave its name to The Straits Times Index.
Others, such as Memories Group, probably resigned to the fact that as a Myanmar-based tour operator, investors will have little interest in the stock or anything linked to the country following the military coup in early 2021. However, more recently, trading interest in Yoma Strategic, the controlling shareholder of Memories Group, has picked up significantly.
Healthcare companies — Asian Healthcare Specialist and Singapore Medical Group — are pending delisting while Singapore O&G has been delisted.
Unlike existing and established healthcare stocks IHH Healthcare and Raffles Medical Group, which have multi-billion market caps and entire hospitals on their books, these relatively new healthcare listings are typically made up of a clutch of clinics with a few main doctors who are also the principal revenue generators cum controlling shareholders. Investors might recall how these healthcare plays won over investors in the past decade as they jumped on the long-term growth story of the medical industry.
Investors cannot be faulted for grumbling that companies often sought to be privatised just when the market seemed to be turning in their favour, especially when the worst of the pandemic is over and the economy looks to be picking up.
For example, MS Holdings, a proxy to the level of local construction activity, was being taken private at 7 cents, just half its book value of 14.6 cents. However, to put things in perspective, the company, better known as Moh Seng Cranes, was trading in the year before the offer was made at just over 5 cents. Another construction play taken private was TTJ Holdings, which provides structural steel.
Roxy-Pacific managed to maintain its business throughout the pandemic as its hotels were used as quarantine facilities. Even before tourism numbers could recover to pre-pandemic levels, the company, which operates hotels such as Grand Mercure Singapore Roxy, was taken private.
Hwa Hong Corp, another property company, had kept a low profile for years. It only started making headlines when two competing groups of related shareholders took the fight to control the company into the open, with one side eventually prevailing.
GYP Properties, which could trace its roots as a listed company to the telephone directory Yellow Pages, was one of those listed entities that changed business and focus multiple times but did not really go anywhere with any of them before fading away from the collective memory of the market.
Golden Energy and Resources (GEAR), which was listed as a construction company Poh Lian back in the late 1990s, is in its current state a coal miner that has recently diversified into gold mining too. However, as institutional investors start to pay more attention to ESG credentials, so-called “dirty” industries such as coal-mining are increasingly being shunned. The surge in coal prices, part of the worldwide spike in energy prices, did not translate into significantly a higher share price for GEAR, even though its most recent earnings for 1HFY2022 ended June surged 859% y-o-y.
As this past year has shown, companies that delist come from different industries and do so under various circumstances. What is certain is that the listings and delistings of companies on an exchange are part of the natural ebb and flow of the capital markets system. As one market watcher says: “It is akin to blood transfusion. An ecosystem needs blood to grow and removing some of those with less vitality in favour of a new infusion isn’t always bad.”
