Privatisation

THE Securities Industry Council (SIC) needs  to move urgently to close a gaping loophole that exists in our corporate takeover rules.

Take the case  of TTJ Holdings, a profitable  and cash-rich mainboard-listed SGX entity. Due to the depressed condition of the construction industry in the last 2 years, the stock last traded at 16.9 Singapore cents versus an audited net asset value of 37 cents.

TTJ is a well-established structural steel construction specialist which  had been profitable until the Covid-19 restrictions  hit in 2020. It is now on the cusp of a major recovery with the relaxation of operational rules and contracts resumed or newly won.

However, its executive chairman Teo Hock  Chwee, who I respect, is now  moving  to buy out the minority shareholders at 23 cents per share. He and family  already own 84 per cent of the company.

Instead of directly making  an offer, he has formed a S$100,000 company called THC Venture Pte Ltd to launch the offer. Since THC Venture owns no shares in TTJ,  it will be entitled to compulsorily  acquire dissenting  minority shareholders' interests in the company  once it secures 90 per cent of TTJ via the 23 cents offer.

Now, as Teo HC has already committed to accept the offer for his entire shareholding, THC Venture will immediately secure 84 per cent of TTJ and just needs to secure 6 per cent of outstanding shares to hit the 90 per cent threshold.

After that, THC Venture  will have the right to compulsorily  acquire the remaining 10 per cent  of TTJ not yet owned by it. 

This will be manifestly unfair to minority shareholders  like me who have been  long-term investors and wish to ride the impending business upturn.

Why should we be forced  out of TTJ at the low-end or trough of the business cycle?  TTJ had, in pre-Covid years, paid decent dividends and the offer  price of 23 cents is a far cry from my own fair value of 50 cents per share.

The problem  in these unfair takeovers  lies in the loophole  where a major shareholder need not secure 90 per cent  of minority shares before compulsory acquisition  and delisting  can take place. He/she is allowed to use  a new shell company to launch the takeover.

In TTJ' s case (and several other buyouts in the past 2 years), Teo does not need to secure 90 per cent of the 16 per cent equity he does not already own. He just needs THC Venture to secure 90 per cent of the overall equity, including his own 84 per cent.

So there is no need for him  to make a much-better offer. TTJ will likely  be privatised  and delisted via the  current desultory  offer of 23 cents per share. 

But this  fait accompli  need not play out if the SIC can intervene. Minorities can only  hope something  will be done before it is too late.

Mano Sabnani