SIAS should be more careful before picking sides
As Singapore's leading voice for all minority shareholders,
the Securities Investors Association (Singapore), or SIAS, should tread
carefully when getting involved in ongoing general offers.
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Kenneth Lim
04 October 2016
As Singapore's leading voice for all minority shareholders, the Securities Investors Association (Singapore), or SIAS, should tread carefully when getting involved in ongoing general offers.
SIAS has been an outstanding champion for minority shareholders in Singapore, and its best work has been done when standing up for minority shareholders who are oppressed or who struggle with poor corporate governance and other improprieties.
But in some recent cases, SIAS has also stepped into the fray in instances where the only issue appeared to be that a general offer was deemed to be too low. In such cases, SIAS's support for minority shareholders of the target company may have come at the expense of minority shareholders of the offeror, and it is not always clear why one side should benefit from SIAS's clout more than the other when both sides are playing by the rules.
The latest example is the ongoing offer by rubber producer Halcyon Agri Corp for industry peer GMG Global as part of a consolidation of rubber assets by Sinochem International Corp, the parent of both Halcyon and GMG.
Twice this year, SIAS put out statements arguing that Halcyon's offer was not valuing GMG fairly.
"Does the board (of GMG) not think GMG is relatively under-valued in this instance?" SIAS asked in April, before reiterating its call in September. "Does the board not think the offer to GMG shareholders is unfair?"
SIAS's argument was not without merit - GMG's independent financial adviser RHB International last month opined that the Halcyon offer was unfair from a financial perspective - but it is not clear why SIAS felt the need to intervene on behalf of GMG minority shareholders if its only concern was that the offer price was too cheap. Do the minority shareholders of Halcyon not deserve a fair chance to try for a good bargain too? A lowball offer on its own is not inherently prejudicial; buyers naturally want to acquire at as low a price as possible, just as sellers want as high an offer as possible. That is how markets work.
It is only when one side of the deal is unfairly prejudiced, for example if there is some form of oppression, improper disclosure or other impropriety, that a problem arises. In those cases SIAS has rightly stepped in, and will undoubtedly continue to do so.
Responding to queries by BT, SIAS president David Gerald said one concern by SIAS is that many independent financial adviser reports are "of no help" to investors, mainly because they often surround their recommendations with so many caveats.
"When the conclusion should be 'don't accept', they will say this is the downside, but if you want to you can still accept," Mr Gerald said.
Indeed, RHB included an additional piece of advice, that the offer was reasonable and acceptable if one believed in the future prospects of an enlarged Halcyon, and took into account the relative share prices and liquidity of Halcyon's stock versus GMG's.
But SIAS may be dismissing these caveats too quickly. RHB captured a nuance that SIAS's statements neglected: That there is value in being part of a bigger industry player, and shareholders must weigh their confidence in that potential against the price of joining the enlarged group.
And that nuance matters for Halcyon's minority shareholders, who are hoping that their company can build up enough scale to be a stronger industry player. Has SIAS considered their interests?
There is a risk that when SIAS wields its considerable influence to help one group of minority shareholders, it can inadvertently hurt another.
Take the example of Singapore Airlines' (SIA) takeover of Tiger Airways in 2015 and 2016. In that instance, SIAS lobbied SIA to raise its offer price for Tiger even though Tiger's independent financial adviser had found SIA's offer to be "fair and reasonable".
Mr Gerald said that helping Tiger shareholders to get a better offer was acceptable for SIA shareholders, since Tiger has since turned around and become a more valuable asset for SIA.
But the fact is that SIA minority shareholders' rate of returns could have been higher if SIAS had not been inadvertently lobbying against their interests. And it is hard to imagine SIA shareholders being too happy about having to pay more for Tiger.
Mr Gerald also said that if SIA was overpaying, SIA's minority shareholders would have reached out to SIAS and lodged complaints, which did not happen.
But picking sides on the basis of complaint volumes is unfair. Just because SIAS does not hear grievances does not mean they do not exist. In any case, SIA's minority shareholders are SIAS's constituents as well, and SIAS should look out for their interests too even if they are not vocal about it.
It may therefore be time for SIAS to consider applying a wrongdoing test before getting involved in these issues. In other words, unless there is some impropriety or oppression, it may be better for SIAS to remain on the sidelines.
This argument for a more discerning SIAS matters because the organisation, through its years of fearless advocacy, has become a force to be reckoned with. But the saying goes that with great power comes great responsibility, and if SIAS does not raise the hurdle for when it chooses sides, it risks hurting its own constituents.