Almost 40 years before Singapore Press Holdings (SPH) announced a value-locking restructuring deal, Singapore’s first Prime Minister Lee Kuan Yew had a few words for former President S R Nathan.
When the latter took up the role of executive chairman of Straits Times Press in 1982, Lee said: “Nathan, I am giving you The Straits Times. It has 150 years of history. It has been a good paper. It is like a bowl of china. If you break it, I can piece it together. But it will never be the same. Try not to destroy it.”
In the next couple of decades, this “bowl of China”, structured into a newspaper monopoly, enriched its longtime shareholders handsomely — until the media landscape changed drastically. At a hastily called press conference on May 6, SPH chairman Dr Lee Boon Yang announced a long-awaited restructuring deal where its core media business will be hived off into a public company with a limited by guarantee (CLG) structure.
Entities with such a structure do not have share capital or shareholders. Instead, they have members guaranteeing the entity’s liabilities.
After a yet-to-be determined period, this CLG will then be sold to a not-for-profit entity for a nominal sum.
To send off its former core business, SPH will “contribute” a total of some $351.3 million in the form of cash, SPH shares, SPH REIT units, SPH’s stakes in four digital media assets as well as market value of the leases in the properties needed to run the operations — namely News Centre in Toa Payoh — where the newsrooms are located — and Print Centre in Jurong, one of Asia’s largest newspaper printing plants.
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This arrangement is a departure from many other restructuring deals, where shareholders would receive some form of sweetener from the disposal of assets or from reduced debt. In this case, it would be neither.
In a commentary, Securities Investors Association (Singapore) founder and CEO David Gerald writes: “I am certain that shareholders need more explanation, as it does seem that existing shareholders are paying (rather than being paid) for this deconsolidation. Additionally, I am aware that a number of investors are of the view that the media business could be more beneficial as a privatised entity or sold to a strategic third party as it does possess long term value.”
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Whatever accretive value there might be, it will not be in the near term. SPH will get rid of a loss-making business but its own net asset value — post-restructuring — would drop from $2.24 per share as at February, to $2.08 per share and its gearing would increase from 30.9% to 32.4%.
In the last couple of months, investors had been betting on a value unlocking restructuring deal, which announced on March 30 that Credit Suisse has been appointed as the financial adviser to this long-awaited strategic review. Since then, SPH shares have gained 57% year to date. At one point, it went as high as $1.98. It last traded at $1.79 on May 5, and a trading halt remains in place at press time.
Old rules don’t apply
On its part, SPH explains that with the transfer of the media business to a newly incorporated, wholly owned subsidiary known as SPH Media Holdings, the restrictive Newspaper and Printing Presses Act (NPPA) will no longer apply on the listed company.
The NPPA of 1974 ensures a fragmented shareholding structure.Rare among Singapore public companies, there’s an additional class of management shares that are held by a small group of local institutions such as the banks and the insurers and as well as the National University of Singapore (NUS).
Without the NPPA, SPH will have more capital management options.
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For example, it no longer needs to issue a new management share for every new share to be issued. The listed company can bring in other investors to seek out new business opportunities, and further unlock value for shareholders and provide better returns in the following years. “Once the restructuring is complete, we believe shareholders will see better value from the rest of SPH,” says Lee.
For years, SPH’s media business has been suffering from structural changes of the industry and while significant investments have been made, revenue from digital platforms could not offset the drop in print advertising revenue. The pandemic which started last year sent SPH’s media business into its first-ever loss of $11.4 million for the financial year ended Aug 31 last year. If not for the Jobs Support Scheme (JSS), the loss would have been a deeper $39.5 million.
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SPH expects losses in the media business to “continue and widen” in the next few years. In contrast, the property business, which was funded by earnings from the media business in the earlier, vastly more profitable years, are the ones holding up SPH’s value, and shareholders are awaiting possible moves such as the spinning off of a second REIT holding its student accommodation assets. In a bid to cut cost, SPH had put its employees through several rounds of layoff in recent years but Lee points out that there is a limit to the cuts without hurting the quality of the media content.
‘Umbrage’
At the briefing, repeated queries over the issue of editorial independence under the restructuring were sufficient to rile up SPH CEO Ng Yat Chung, who said he “took umbrage” by such questions. “There are reporters from here who receive substantial funding from various sources and I don’t believe that you would describe yourself as bowing to the needs of advertisers in doing your job,” says Ng, a former Chief of Defence Force who joined SPH in 2017 from shipping company Neptune Orient Lines.
“We have always had advertising and we have never conceded to the needs of advertisers. We always continue to provide fair, reliable, credible reporting,” he adds, tone rising. “The purpose of doing this is so SPH Media will continue to do the job that we have done so well for so long!”
“I must call this out… Chairman [Lee] is a gentleman. I’m not.”
The deal, which has been given support by the government, now needs to pass muster before SPH shareholders at an EGM to be called at a date to be determined. Will they give their support? Or, will they too call out what they might perceive to be a value locking plan?
Whatever the case, consider the group of management shareholders, whose shares outvote ordinary shares by 200. According to SPH’s annual report, this hallowed group includes the likes of Great Eastern, OCBC Bank, NTUC Income, Singtel, DBS, United Overseas Bank (UOB), NUS and Nanyang Technological University, among others. These are all local institutions each actively changing their own businesses with time.
As the de-facto guardians of this “bowl of China”, there’s hardly any doubt they will make this restructuring a done deal.
