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&rsquo 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&rsquo 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.

On May 20, TTJ Holdings&rsquo major shareholders via THC Venture has made a voluntary conditional offer (VCO) for the shares in TTJ it doesn&rsquo t own at $0.23 cents per share. Teo Hock Chwee owns 84.4% and his daughter 0.1% of TTJ. The announcement says THC Venture, the offeror, intents to privatise the company and does not intend to preserve the listing status of TTJ if it ends up holding more than 90%.

 

The rationale for the offer according to the preliminary May 20 announcement appears compelling. Shareholders can realise a premium over the market price without incurring brokerage costs. Based on TTJ&rsquo s 1HFY2022 announcement, (the company has a July year end) labour shortages are likely to persist in the short term and output of the construction sector is expected to remain below pre-pandemic levels throughout 2022.

 

The domestic construction sector is expected to face higher material costs in 2022, largely from persistent supply chain bottlenecks, alongside rising energy prices due to geopolitical tensions, which have exacerbated global inflationary pressures, the announcement says.

 

Despite these challenges, the Offer Price represents a premium of approximately 33.6%, 28.8%, 28.0%, and 29.4% over the volume weighted average prices of the shares (&ldquo VWAP&rdquo ) one-month, three-month, six-month and 12- month periods respectively, up to and including May 12, 2022, the last trading date prior to the May 20 announcement.

 

The company, for its part, would save on maintaining its listed status, including compliance and associated costs. Since its IPO on April 1, 2010, TTJ has not raised any equity. According to the company&rsquo s 1HFY2022 results, the company is in a net cash position of $29 million. In addition, it holds financial assets of $1.7 million and non-financial assets of $1.4 million.

 

&ldquo Although this offer of $0.23 represents a premium over its VWAP price, the deal puts TTJ Holdings to be valued at 0.63x book (NAV 37 cts). Additionally, given that they have $32 million net cash (and financial assets), or 9 cents per share and record order book of $187 million, we think management is being opportunistic in an attempt to privatise the company on the cheap just as the inflection point of the construction sector [is at hand for an] upturn. Note that this offer is not final, and taking the above into consideration, we recommend investors to hold out for a better offer,&rdquo says Lim & Tan in a May 23 update.

THE executive chairman of mainboard-listed TTJ Holdings is looking to take the structural steel specialist private at an offer price of S$0.23 in cash per share.

 

According to the offer announcement filed to the Singapore bourse on Friday (May 20) night, THC Venture intends to make a voluntary conditional offer for all the issued and paid-up ordinary shares in TTJ.

 

THC Venture is an investment holding company which is held solely by Teo Hock Chwee, the executive chairman of TTJ. Teo has a direct and deemed interest in 294.9 million shares, representing about 84.4 per cent of the total number of issued shares in TTJ.

 

The offer price represents a premium of about 33.6 per cent, 28.8 per cent, 28 per cent, and 29.4 per cent over the volume weighted average prices of the shares for the 1-month, 3-month, 6-month and 12-month periods respectively, up to and including May 12, which is the last full market day on which the shares were traded prior to the announcement. The last traded price on May 12 was S$0.169 per share.

 

The offer is conditional on the offerer receiving valid acceptances such that the number of offer shares, when taken together with any shares owned, controlled, acquired or agreed to be acquired by the offerer and parties acting in concert with it, will total over 90 per cent of TTJ&rsquo s issued shares at the close of the offer.

 

The offer is an &ldquo opportunity for shareholders to realise their investment in the shares at a premium over the market price without incurring brokerage costs&rdquo , it said in the offer document, adding that TTJ&rsquo s shares also have low trading liquidity. THC Venture intends to privatise the company and does not intend to preserve the listing status.

 

TTJ Holdings Limited today announced its order book has reached $187 million on the back of several new structural steel contracts secured. The company expects to substantially complete these projects between FY2022 and FY2024. 

The Group&rsquo s core business lies in the design, supply, fabrication and erection of a wide spectrum of structural steelworks for use in the construction of buildings, factories, plants and infrastructure, with fabrication facilities located in Singapore and Johor, Malaysia. 

&ldquo While constraints on foreign labour and headwinds such as global inflationary pressures and rising material costs weigh down the outlook for the immediate term, we believe the construction sector will continue to normalise as Singapore gradually opens its economy and its borders,&rdquo Teo Hock Chwee, TTJ&rsquo s Executive Chairman, says. &ldquo Over the immediate horizon, we will maintain our disciplined approach to managing our resources, so as to deliver our order book on schedule, and continue to work towards growing the business in a sustainable manner.&rdquo  

STRUCTURAL steel fabricator TTJ Holdings returned to the black as it posted a net profit of S$1.6 million for the half-year ended July 31, from a loss of S$14.1 million in the same period a year ago.

 

Revenue in the same period grew by 48 per cent to S$52.3 million, up from S$35.3 million the year before.

 

This was due largely to growth in revenue from its structural steel operations, which increased to S$51.9 million from S$34.2 million a year earlier.

 

Earnings per share for the second half of the financial year stood at S$0.0050, reversing a loss per share of S$0.0358 a year ago.

 

The group declared a first and final dividend of S$0.008 per ordinary share for the financial year ended July 31.

 

For the full year that ended that day, net profit was S$4 million, reversing a loss of S$12.7 million a year earlier while revenue was down 3 per cent to S$75.4 million.

 

The group attributed the decline in revenue for the year to the slow and gradual restart of project sites in the construction industry after the circuit breaker measures were lifted. This led to a 1.3 per cent dip in structural steel revenue to S$75 million for the year.

 

Still, the company&rsquo s gross profit increased 42 per cent to S$11.3 million, while its gross profit margin improved to 15 per cent from 10.2 per cent a year earlier. It noted that profitability in FY2020 suffered as the group incurred operating costs despite the circuit-breaker measures in SIngapore.   Lockdown restrictions in Thailand also impacted its revenue then. 

 

TTJ executive chairman Teo Hock Chwee said that while the construction sector is expected to recover this year, the industry will not return to pre-pandemic levels yet and that the company will continue to monitor the situation.

 

The company also highlighted labour shortages in Singapore due to border restrictions as a potential constraint, although it also highlighted that its order book remains healthy at S$119 million. The orders are expected to be substantially completed between FY2022 and FY2023, depending on the Covid-19 situation and prevailing safe management measures.