OSIM offer sparks buzz over other possible candidates for delisting

Singapore - OSIM International founder Ron Sim's privatisation bid for his lifestyle-products group is stirring speculation that the persistently gloomy state of the local stock market could tempt more controlling shareholders to consider taking their firms down that route too.

Already feeling under-appreciated by investors as their respective stock prices fail to perform, listed companies also have to shoulder the burden of complying with a growing raft of regulations; and there is also the cost of staying listed, which can be as much as about S$1 million a year for mainboard companies and around half that for Catalist ones, market watchers said.

Names bandied about for potential delisting bids include household names in the consumer sector and some in the battered oil-&-gas sector, along with usual suspects in the property and construction industries. These are mostly small- and mid-cap businesses.

While each unhappily listed stock is likely to be so for its own reasons, analysts identify the following factors as those that lift the likelihood of a privatisation bid: low price-to-book (P/B) valuations on the back of dimmer earnings prospects, having major shareholders controlling more than half the company, and, of course, having a substantial cash pile, either on the balance sheet or in the deep pockets of the controlling shareholder.

Mr Sim, OSIM's chief executive, offered on Monday to pay S$1.32 a share for the remaining 30.75 per cent of the firm, known for its massage chairs and TWG luxury tea.

RHB Research regional consumer head James Koh told The Business Times that stocks in the consumer sector, where companies "often have difficult-to-build brands", may be relatively attractive for privatisation. He added that companies with "strong franchise values, but which have had their share price beaten down due to the current poor earnings outlook" would be more likely targets.

Smaller companies may also be more susceptible, given low investor interest and the "more stringent conditions" imposed by the Singapore Exchange, such as the minimum trading price requirement for a mainboard listing, he said.

"Such companies may have to consider delisting rather than pay the cost - both in monetary and effort terms - to maintain their listing status."

Though he did not name particular stocks, market speculation has swirled around ornamental fish seller Qian Hu, F&B group BreadTalk, traditional Chinese medicine firm Eu Yan Sang and luxury watch retailer The Hour Glass as being ripe for delisting.

Another household name that might be taken private is hospitality group Banyan Tree, which DBS Group Research identified as one of five "bombed-out" potential privatisation candidates in a Tuesday note. "At 0.6x P/B, major shareholders which collectively own over 78 per cent of Banyan Tree could look to privatise the group. Of the 78 per cent, the Qatar Investment Authority owns 27.1 per cent, while the chairman owns over 37 per cent; a takeover attempt by one of the major shareholders thus cannot be ruled out."

The other four candidates named by DBS Group Research were offshore-services providers PACC Offshore and Pacific Radiance, building-materials and port-services provider Pan-United and construction-crane-rental company Tat Hong. The research house had also said in a Monday note that offshore firms with "high cash hoards, such as Baker Tech", were good privatisation candidates.

OCBC Investment Research head Carmen Lee said in an e-mail that most oil-&-gas stocks are trading at "very low PER (price-earnings ratio) and P/B" and that this space could see some corporate activity, especially cash-rich companies looking for upstream or downstream businesses to complement their operations.

Property stocks which are tightly held by key shareholders are another potential group of privatisation candidates, she added; in this sector, the Qualifying Certificate regulations are a key factor.

She did not name stocks, but in the property sector, names such as Wing Tai have been floated around as potential privatisation plays for some time already.

"If valuations of companies are too low ... and listing costs and requirements are too high - that is, they are tedious and take up too much of management's time, for example - some smaller-cap companies might consider delisting and re-focusing their management's time on running the business," she said.

Dr Ernest Kan, chief of operations for clients and markets at Deloitte Singapore, said Singapore-listed companies in general may want "more flexibility to run or restructure the businesses, away from the strictures of compliance and public disclosures".

However, he sought to soothe worries about a chronically shrinking stock market, saying: "While the market may perceive a spate of local firms delisting from the SGX as a concern, the spike in delisting can indicate a sign of healthy liquidity and M&A activity, which may not hurt the market's vibrancy."


This article was first published on March 9, 2016.
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