THE $1.80-per-share offer by chief executive and chairman Simon Cheong for shares in SC Global is "fair and reasonable", say the high-end residential property development company's independent financial advisers.
In a circular sent to shareholders yesterday, SC Global's independent directors said that they agreed with the advice, and recommended that shareholders accept the offer, or sell their shares in the open market if they can obtain a price higher than the offer price (after deducting related expenses).
Yesterday, SC Global's shares eased two cents to close at $1.925 before the circular was released.
Independent advisers PrimePartners Corporate Finance said that SC Global's revalued net asset value (RNAV) per share is $2.25 on an as-is valuation basis, and $2.16 on a gross development value basis, based on the estimated revaluation surpluses on unsold and/or uncompleted development properties.
In comparison with comparable precedent transactions, the price to revalued net asset value ratio (P/RNAV ratio) of the company of 0.80 times, as implied by the offer price, is also higher than the P/RNAV ratios of comparable companies with the exception of Guocoland's P/RNAV ratio of 0.81 times.
It is also worth noting that the company has a total net debt of approximately $1.39 billion as at Sept 30, resulting in a relatively high net debt-to-shareholders' equity ratio of 2.2 times, noted PrimePartners.
SC Global's management has indicated that it may, as and when appropriate, take steps to reduce debt gearing or fund the holding costs and expenses through various methods, including but not limited to reducing dividends and/or undertaking equity cash calls from shareholders.
PrimePartners added: "The group's high level of inventory holding and indebtedness means that a material portion of its expected cash flow may be required to be dedicated to the payment of interest on its indebtedness, operating costs of maintaining its inventory and payment of any relevant qualifying certificate-extension charges or penalties, thereby reducing the funds available to the group for use in its general business operations."
That being said, the offer price represents a discount of approximately 20.0 per cent to the RNAV per share of $2.25, noted the advisers.
"We note that the company has a substantial inventory of unsold units as well as development properties that have uncontracted units expected to be completed in future. Taking into account the outlook for the luxury residential sector in Singapore and the slow take-up rates of the company's inventories, the company may not be able to sell its inventories at the necessary premiums to realise profits in the near future," they said.
Shareholders who wish to accept the offer must do so by 5.30pm on Jan 16.
The advisers noted that the offer price represents a discount of about 20.0% to the RNAV per share of $2.25.