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Can You Protect Yourself From Unfair SGX Delistings?

Ho Khinwai
Ho Khinwai

One of the two train operators (which often breaks down), SMRT – Delisted.
The 3-in-1 coffee brand we buay hiam (aren’t fussy) about, Super –
The massage chair company with Andy Lau’s face on its ads, OSIM –
The telco that made Circles.Life possible, M1 –

Investors in recent years have seen a slew of stock counters being delisted from the Singapore Exchange (SGX: S68)… some of them at very unsatisfactory exit offer prices.

You can see the delisting trend pretty clearly as I plot out the number of SGX-Listed companies from mid-2016 to now, below:

Source: SGX Market Data

You might even have been a shareholder who got slapped in the face with a delisting offer that you think wasn’t fair (considering the company’s growth prospects and financial position)…

…but was forced to sell because management managed to buy back 90% of the shares from public investors.

I was in that exact situation with one of the companies listed above.

I had made all the right moves – I had analyzed the business, figured out the growth potential and arrived at an estimated intrinsic value of the stock.

After holding it for three years, they announced their delisting plans and closed the offer at a price almost 40% below what I thought was fair value… at a time when the stock price was near its 52-week low.

To add insult to injury, the company had already planned to re-list itself on the Hong Kong stock exchange (HKex)!

In fact, many local companies (like Razer) are increasingly choosing to list on HKex rather than SGX…

Minority shareholders like me had little say in the delisting decision.

The controlling shareholders (most of whom were part of management), had already owned almost 70% out of the 90% to do a compulsory acquisition!

Yes, call me salty – but given how many instances this has happened to investors over the last couple of years, I think investors should be prepared on how to deal with such investor “squeeze outs” and how to reduce these stocks in your portfolio in the first place (I learned this the hard way).

I will also add some observations on the recent SGX proposal to protect minority shareholders, and on the state of stock market participants in Singapore.

You – as a Minority Investor

Let’s face it – minority shareholders don’t have much power when it comes to important decision-making like electing members into a Board or voting to change a failing business strategy.

This is especially so in Singapore where most retail investors don’t really have the time to monitor the businesses they invest in (because of their jobs)… until a big issue arises that significantly impacts their stock value.

But by then – the damage would already have been done.

Thus, it is a good idea for us minority shareholders (especially active ones) to collectively come together to ask management important (and sometimes difficult) questions about the company’s progress as frequently as we can – either during AGMs or through email correspondence.

This signals to management that the collective investor community is closely watching them, and this will keep them on their toes in looking after the interests of the small investor.

Benjamin Paul, Editor-at-Large at The Edge Singapore, has recently shared similar views that minority shareholders should voice out to fight for better exit deals… even going so far as to include a templated letter they can edit and send to the company’s Board of Directors.

I would like to take that idea of active involvement of minority shareholders a little further, and suggest that there should be more activist shareholders, hedge funds and law firms that deal with protecting long-term minority interests in Singapore.

In the US, investor activism is very strong.

Image result for activist insight online 2018
Source: Activist Insight, 2018

We see Pershing Square fund manager, Bill Ackman, successfully forcing a replacement of Procter & Gamble’s CEO when the company underperformed its peers in 2013.

Other names like David Einhorn and Carl Icahn also come to mind. For instance, Icahn campaigned for a Time Warner split-up back in 2006, but only managed to achieve the election of two independent board members and commit to cost-cutting measures… which paid off handsomely for all shareholders.

By introducing more shareholder activism, it would enable more immediate checks and balances in these companies, and would prevent controlling shareholders from gaining too much power in the first place.

But waiting for such activism culture to happen in our stock markets might take a while.

So what else can we do?

Blame the gah-men like Hyflux?

Indeed, SGX and market regulators have been feeling the heat for regulatory changes from investors who have been burned by their Hyflux investments and the numerous unfair delistings.

SGX is in the midst of revising the delisting rules to make it fairer for minority shareholders. Some of these changes include whether to disallow majority shareholders from voting at EGMs held to decide on voluntary delisting (just like in Hong Kong), reducing the delisting threshold for needed votes to 50%, and scrapping the 10% requirement for those that are against the delisting.

However, according to David Gerald, CEO of SIAS, such changes will likely not come so soon.

What Should Investors Do Then?

Are minority shareholders doomed be at the mercy of controlling shareholder’s self-interests?

It shouldn’t have to be this way.

I recommend that retail investors like you and me take a thorough mid-year review of your current stock holdings – and ask yourself if they still check the boxes of why you bought those stocks in the first place.

At Dr Wealth, we teach our members a simple and robust way to evaluate businesses quantitatively, known as Factor Based Investing.

One of the criteria we check for is called “skin in the game”, where management owns a sizeable amount of shares (preferably more than 50%) such that interests are aligned with minority shareholders – but not over 70% where they gain too much power.

Many of the counters that have delisted have failed to pass a number of important criteria such as this.

For instance, Challenger had 84.4% insider ownership during the last FY18 annual reporting. LTC Corp had 88.4%. Super Group had 73.6%. Even the latest delisting case (just today) of Boardroom (SGX: B10) had 88.5%!

We also tend to use a generous amount of margin of safety in our numbers – like discounting all receivables by 50%. This is so that if a buyout offer is priced way below our estimated value, we would be well buffered – and might even profit if our buy-in price is low enough.

In Conclusion

We can blame the regulators for not protecting minority shareholders early on.

We can begrudge the fact that other shareholders aren’t stepping up to do more.

We can blame the companies for being profiteering… and the stock market for making us play a zero-sum game.

However, these things ultimately aren’t within our control.

To protect ourselves – we need to learn better ways to invest and learn how to spot red flags early on.

We need to learn how to structure our portfolios and diversify well such that we don’t get affected by a drastic change in any one of our holdings.

This is what we can fully control.

What do you think about the slew of stock delistings in Singapore? What is your own experience with it? Share it with us below!

Ho Khinwai
Ho Khinwai
Equity investment analyst at Dr Wealth. Value investor at heart. He holds a BBA (Finance) degree and occasionally writes for SumZero and SeekingAlpha.
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3 thoughts on “Can You Protect Yourself From Unfair SGX Delistings?”

  1. How about making DL management pay for the highest stock price attained for the past one year, as the minority had paid up with their hopes and chased up, or somewhere near the highest price, if they considered the company is worth more than current price.

  2. I think the SGX also should be held responsible for this state of affairs, as they have all the powers to prevent this from happening and are not acting or slow to act.

  3. MAS and SGX must come in to tighten rules. If companies want to get listed in public domain, they must now treat small investors as suckers. We value these companies using metrics such as PBS, NAVs etc. When companies decide to go public, they upsize the their values by as much as three to five times making all founders, millionaires. They then sit back and when times are bad, their market values sinks to 52 week lows, they pay a small premiums on market sentiments and give two hoods to Book values or NAVs?
    Investors confidence have always been Low when SGX and MAS are too bias against retail investors and favour companies to list in Spore. Chinese companies exploited Spore investors previously and now even local companies are doing the same. With these, Singapore investors will be reluctant to part their monies onto these investment space when authorities are just too happy to allow scammers to come in.


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