Best World International says a group of shareholders who had on March 21 requested for an EGM to be held have on April 1 withdrawn their requisition letter.

 

In its announcement via SGX, Best World did not indicate the reason why.

 

Even so, this group of shareholders, who collectively own more than 10% of the company, have reserved their rights to issue another requisition letter down the road.

 

As such, Best World will not take further action for now regarding the requisition.

 

According to Best World in its previous announcement on March 22, this group of shareholders are taking issue with the remuneration of the directors, and they want to oust the three independent directors now on the board.

 

In addition, they want the company to appoint an independent financial adviser to help gauge an appropriate level of dividends that ought to be paid, given how Best World has refrained from doing so even though it has a cash balance of $574 million as at Dec 31 2023.

 

As indicated by Best World then, this group of shareholders are willing to work towards a " common ground" .

 

Separately, Best World had on March 22 announced plans to launch a selective capital reduction exercise so that the existing controlling shareholders can privatise the company.

BEAUTY products seller Best World International : CGN +1.57% is the latest addition to a growing list of Singapore Exchange-listed entities whose minority shareholders are agitating for change.

 

Emboldened, perhaps, by the examples of others, and quite likely irritated by long-languishing valuations, Singapore&rsquo s minority shareholders are taking a stand.

 

A group of shareholders on Mar 22 sent Best World a letter requisitioning an extraordinary general meeting (EGM) where they hope to remove three directors, get some accountability on director remuneration, and set in motion a plan for extracting more cash out of the company.

 

The day before Best World announced the receipt of the letter, cord blood banker Cordlife Group : P8A -3.06% said it had received two requisition notices. Two different substantial shareholders are trying to add to their representation on the board.

 

Other listed entities that have received requests from minority shareholders in the last six months are: lab-grown diamond producer Metech International : V3M +5.88%, insurer Great Eastern Holdings : G07 +0.22%, real estate investment trust Sabana Reit : M1GU 0%, business trust Dasin Retail Trust : CEDU -7.69%, rabbit meat producer China Kangda Food Co : P74 0%, and construction services provider Raffles Infrastructure Holdings : LUY 0%.

 

This flurry of activity is taking place against a backdrop of increased shareholder activism and greater focus on corporate governance in Japan and South Korea, which has in turn galvanised their boards and injected life into their stocks.

 

The seeds of Japan&rsquo s activism wave may have been sown in 2019, when the nation&rsquo s companies received what was then a record high of 54 shareholder proposals from institutional investors.

 

This high number of proposals may, however, have been as much a symptom as a cause.

 

At a 2020 seminar on shareholder activism in Japan, Jeffrey Gordon, the Richard Paul Richman Professor of Law at Columbia Law School, noted a change in attitudes around that time among investors and government actors.

 

Shareholder activism became more widely accepted &ndash as suggested by activist proposals winning larger vote shares &ndash and government-linked investors became more concerned about value creation.

 

Other speakers at the same seminar noted also that board compositions were beginning to favour independence, and that independent directors were slowly growing to accept a role as mediator between management and institutional investors.

 

Singapore&rsquo s current wave of activism is unique because it is being driven mostly by individual shareholders, who are less likely to be received with the same level of courtesy or seriousness accorded to big money managers.

 

Their path to making a significant impact could, therefore, be a little bit steeper. Yet, independent directors have a chance to ease their burdens. How?

 

Several insightful suggestions were offered at the seminar by speakers from fund managers and activist investors.

 

Directors should be alert to and manage potential conflicts of interest, such as how executives are compensated, directors nominated and hostile bids treated.

 

They should communicate more to shareholders. They can, for instance, enhance the credibility of a company&rsquo s strategy by explaining key considerations and how they contributed to the discussion or questioned a decision.

 

Finally, they should meet more shareholders to get more perspectives. When directors spend most of their time with each other, one speaker said, they gradually get used to that atmosphere.

 

For an independent director, such stagnation should be anathema.

 

MAINBOARD-LISTED Best World International : CGN +1.14% is looking to delist from the Singapore Exchange (SGX) by way of a selective capital reduction, citing the poor consumer sentiment and growth headwinds in its China market.

 

A selective capital reduction refers to the cancellation of all issued ordinary shares in the company, except those held by non-participating shareholders. In return for their cancelled shares, shareholders will receive cash.

 

In a bourse filing on Friday night (Mar 22), Best World said it intends to obtain approval for the selective capital reduction at an extraordinary general meeting (EGM), where a special resolution must be passed by eligible shareholders.

 

Eligible shareholders who can vote for the selective capital reduction do not include the company&rsquo s major shareholders who are involved with the business, said the beauty products distributor.

 

Best World is majority owned by holding company D2 Investment, with about 44.8 per cent of the issued and paid-up share capital. D2 is owned by Best World founders Dora Hoan and Doreen Tan, with each holding a 50 per cent stake.

 

Best World co-chair and group chief executive Hoan also owns an additional 7.5 per cent of the company, while co-chair and president Tan holds another 7.3 per cent. Chief operating officer Huang Ban Chin owns a 5.4 per cent stake.

 

Hoan&rsquo s daughter Li Lihui has less than 0.1 per cent in Best World and is assumed to be acting in concert with Hoan, who is also Best World&rsquo s managing director. Tan&rsquo s daughter Pek Jia Rong also owns less than 0.1 per cent and is assumed to be acting with Tan.

 

In this vein, Hoan, Tan, Huang, Li and Pek will abstain from voting on the selective capital reduction or from making a recommendation on the exercise.

 

Best World also noted that the selective capital reduction also requires the approval and confirmation of the High Court.

 

Under its rationale for the bourse exit, Best World noted that it continues to expect growth headwinds for its China market, due to uncertainties such as stock market volatility and the challenging property sector weighing on consumer sentiment.

 

It added that going private could also enable it to dispense with the compliance costs needed to stay listed, as well as costs of other regulatory requirements.

 

&ldquo The company believes a privatisation... will provide the necessary flexibility to optimise its resources to focus on the longer-term strategies of the business,&rdquo said the group.

 

The selective capital reduction would therefore enable eligible shareholders to exit their investment at a &ldquo fair market price&rdquo despite Best World&rsquo s low trading liquidity. It has appointed Evolve Capital Advisory to be its independent financial adviser, which will provide an opinion on the exit offer.

 

In its results for the year ended Dec 31, 2023, Best World posted a net profit of S$120.4 million, down 11.7 per cent from S$136.3 million from FY2022, on weak consumer sentiment in China. Its revenue also declined, falling 7.7 per cent to S$514.5 million year on year, from S$557.3 million.

 

This is not the first time the company has considered a delisting. Amid a trading suspension due to regulatory concerns about its business model in China, the company in November 2021 had said a delisting might be appropriate due to market conditions and the circumstances of its China operations.

 

It conducted two off-market offers to buy back shares for S$1.36 apiece, which were both oversubscribed.

 

Best World shares eventually resumed trading on Nov 14, 2022, on the back of an improved audit opinion for FY2021 and legal opinions noting the non-compliance risk of its business model in China were remote.

 

Shareholders requisition EGM to vote on dividend policy and directors&rsquo pay

In a separate bourse filing on Friday, Best World said it had received a letter dated Mar 21 from shareholders seeking to pass six resolutions at the next general meeting.

 

The letter was sent by shareholders who hold at least 10 per cent of shares in Best World, and serves as a notice requisitioning an EGM, or as a notice for the resolutions to considered at the next annual general meeting.

 

In the first resolution, the requisitioning shareholders seek to have the company engage an independent financial adviser to advise the board on the appropriate cash reserves and dividend policy of the group, and for the group to post the recommendation and the report on SGX.

 

In its latest financial results, Best World&rsquo s cash and cash equivalents stood at S$574 million, as at Dec 31, 2023. The company did not declare a dividend for FY2023, citing working capital requirements and an uncertain business climate.

 

The second resolution requests the board disclose the recommendation of the group&rsquo s remuneration committee on the pay of its executive directors, as well as to attach a copy of the report prepared by advisory consultacy HRGuru for a benchmarking exercise that was completed in August 2023.

 

The benchmarking exercise was in relation to the pay of the company&rsquo s executive directors comparable to the benchmarks.

 

Alternatively, if the HRGuru report is unavailable, the requisitioning shareholders ask the company to engage a compensation consultant to review its executive directors&rsquo compensation and publish the subsequent report on SGX.

 

Another resolution involves the company disclosing any transactions, as defined by Chapter 10 of the Listing Manual of the Singapore Exchange Securities Trading, upon approval by shareholders in the EGM.

 

The final three resolutions call for the removal of independent directors Lee Sen Choon, Adrian Chan and Chester Fong.

 

Best World&rsquo s board is considering the letter&rsquo s contents and seeking legal advice.

 

The requisitioning shareholders also indicated they are open to meeting with the board to discuss the concerns of the requisition letter and to &ldquo find common ground&rdquo with the board, said Best World.