SIAS, the local investors’ group, has urged the offerors trying to privatise coal and gold miner Golden Energy and Resources to improve their terms, as the spate of such deals continues.
Three months after the offer was launched last November, Stanmore Resources, which is 64%-owned by GEAR, reported much better earnings of A$727 million ($653.5 million) for FY2022, a big jump from just A$7 million recorded in FY2021.
Revenue of the Australia-based coal miner in the same period was up from A$284 million to A$2.7 billion. Prospects of better earnings has lifted Stanmore’s share price by around a third since the offer was announced.
Based on its Feb 28 closing price of A$3.53, Stanmore had a market capitalisation of A$3.18 billion, which implies that GEAR’s stake is worth at least A$2.04 billion, or $1.86 billion.
It is this runup in Stanmore that SIAS believe has probably prompted SGX RegCo to state on Feb 24 that W Capital, the independent financial adviser is to take into account “if there are any material changes to the traded price of the company’s component assets that have taken place since the announcements, the IFA should consider these changes’’.
In the same interim, GEAR’s own reported earnings for FY2022 improved vastly too, up 522.4% to US$771 million, on the back of a 199.7% increase in revenue to US$5.6 billion.
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The value of GEAR’s stake in Stanmore of around $1.86 billion contrasts with GEAR’s own market cap of around $2.3 billion.
GEAR owns a 50% share in a privately-held Australian gold miner Ravenswood Gold. Its core asset is its 62.5% stake in Jakarta-listed Golden Energy Mines, which values GEAR’s stake at around 24 trillion rupiah, or around $2.1 billion.
In addition, SIAS points out that on Nov 8, just the day before the privatisation was announced, for reasons that aren’t clear, GEAR’s shares suffered a huge plunge, dropping 26% from 90.5 cents to 67 cents.
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“Upon being queried by SGX on reasons for the large loss, SIAS notes that GEAR pointed to several articles in the local press on the company’s intention to exit the coal business as possible, though not definitive, explanations,” notes SIAS president David Gerald.
“However, whatever the reason for the slide, the point they feel is that the large, unusual fall is a one-off blip that is a distortion that should not be a consideration when evaluating the privatisation bid,” adds Gerald, referring to disgruntled investors who have already made their views known.
Under terms of GEAR’s offer, minority shareholders can either choose an all-cash option valued at 84.6 cents. Or, they can take a mix of GEM shares and cash, which theoretically gives them $1.045 per share.
Gerald reasons that given that retail shareholders here are relatively unfamiliar with Jakarta-quoted GEM, they will most likely pick the all-cash option.
Using the Nov 8 closing price of 67 cents as a basis, the all-cash offer of 84.6 cents appears fair. However, it is not a “reasonable” indicator of GEAR’s market price of the one-off plunge.
“For the aforesaid reasons, SIAS feels that there are compelling reasons for GEAR to revise its offer upwards by taking into account Stanmore’s value whilst ignoring the 8 Nov 2022 closing price. SIAS therefore calls upon the company to do so which will be fair to the shareholders,” says Gerald.
“SIAS acknowledges that in any privatisation-cum-delisting bid, buyers will always pitch their price as low as possible so as to extract the maximum value, whilst sellers will always want to receive top dollar. As such, a fair settlement price should lie somewhere in between these two extremes.
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"The problem is that as it stands now, shareholders feel that what is on the table is too low to be remotely described as fair to minorities,” he says.
"However, we are open to discussion on the matters raised in this letter to receive your responses as soon as possible," adds Gerald.
SIAS made a similar call, urging Boustead Singapore to revise its privatisation offer of its separately-listed subsidiary Boustead Projects to a level closer to the latter's book value of $1.265 per share.
Following SIAS' call, the offer was revised from 90 cents to 95 cents.
