Update 5 Dec 2022 – The Tangs have increased the offer price by $0.03 to $0.75 and currently owns approximately 47.27% of the total number of issued Shares.
This offer is now only 6% lower in valuation to the 2018 offer to the controlling shareholders which the Tangs had to offer a premium to obtain the entire share block and makes the current offer even more reasonable.
Background
In October 2018, the founding Lim family of Chip Eng Seng (CES) sold 29.73% of the company to Ceiline Tang and her husband Gordon Tang at $1.08 per share, retaining only 3.33% of the shareholding. Subsequently, Celine Tang was appointed Chairman of CES.
In October 2019, CES carried out a rights issue to raise $96.3 million in net proceeds. The proceeds were to be used to finance expansions and acquisition plans. Due to the poor interest from minority shareholders, The Tangs had to subscribe for more than their allocated rights share as part of their agreement to underwrite the rights issue.
Subsequently, The Tangs added further to their stake and owned 38.23% of total number of shares when they made the privatisation offer.
Now, The Tangs have made an offer at $0.72 per share to acquire the remaining outstanding shares and they intend to acquire the entire shareholding and delist the company. This will cost them approximately $349 million.
If the Tangs are able to obtain at least 90% of the total number of issued shares, they will be able to delist the company.
The offer has turned mandatory after The Tangs purchased 6.3 million shares of Chip Eng Seng in early trade on Friday (Nov 25). The Tangs now own 42.3% of the company.
p.s. “Mandatory” here means, it is required for the offeror to make the same offer to every shareholder. As a shareholder, you still have the option to accept or reject the offer, but many mistakenly give up their shares because they are ill informed. There are several other “confusing” investing situations, stay informed here.
Expected timeline of events
Although the timeline is not yet published yet, what we know is a formal offer document of acceptance will be dispatched to shareholders not later than 21 days from the date of announcement (24 Nov 2022).
The Offer will remain open for acceptances for a period of at least 28 days from the date of posting of the Offer Document.
If the offer is revised, the revised offer must be kept open for at least 14 days.
If the Tangs do not obtain at least 50% of the total number of shares, they will have to wait 12 months before announcing another offer.
If they have at least 50% of shares, they will have to wait 6 months if they want to make another offer at a better price, otherwise they will have to wait 12 months should they want to make another offer at a same or poorer price.
Why the offer?
The Tangs want to acquire majority interest in the Company and delist the Company from SGX.
They have explained that due to rising interest and inflation rates, the ongoing COVID-19 pandemic as well as geopolitical tensions ensuing from the ongoing Russia-Ukraine conflict, property developers in Singapore are operating in a challenging environment.
On the back of the macro headwinds, The Tangs believes that this offer will enable them to obtain greater control to manage the overall business, optimise and streamline the resources to improve operational efficiency and effectiveness.
Our insights
1) The founding family sold at $1.08 in October 2018
Based on the NAV in 2018, a $1.08 price would reflect a P/b of 0.82 times. Applying the same ratio to 2021’s NAV of $0.97, this would be $0.80. The offer is 10% lower at $0.72.
2) Last two years have been tough
CES was profitable throughout all the years since its listing in 1999 until the pandemic hit and caused the company to fall into an unprecedented loss position for two years running. Operational losses and revaluation losses on assets caused the significant loss per share.
The pandemic disrupted CES significantly and projects have been delayed. CES has also found it challenging to acquire new sites because of limited supply from government land sales and increased competition from local and foreign developers.
The company continue to face manpower shortages, supply chain disruption, increased raw material prices and border restrictions
3) But there will be an eventual recovery…right?
In the face of macroeconomic uncertainty, no company would sit still and let themselves be ruined by the broader economic conditions.
In 2021 and 2022, CES successfully completed its enbloc acquisition of Maxwell House, Peace Centre and Peace Mansion. The construction business also secured major public sector projects CES also divested several non-core assets assets and digitalised its processes for greater efficiency and enhanced productivity.
The Tangs are also controlling shareholders of SingHaiyi, a well-established real estate developer. SingHaiyi and CES had entered into numerous joint ventures to leverage on the collective experience and expertise to deliver superior products to consumers.
The Tangs also own stakes in Singapore-listed Suntec REIT, ARA US Hospitality Trust, Eagle Hospitality Trust, Cromwell European REIT, OUE Commercial REIT and OKH Global, hence investors may believe that CES can reap more synergies in the long run.
So is this another delisting for cheap?
Delistings in SGX seem to occur quite frequently, especially when the share price is suppressed due to broader market conditions.
[p.s. we’ve also found 5 other SGX stocks that could delist at a premium and give you a windfall, here’s the report.]
Although the valuation of the offer is below the price which the Tangs first bought in, the fact is that the economic situation is much more uncertain now than in 2018 which could justify the 10% lower valuation. Hence we think while the offer seems to be reasonable, it may not be viewed as compelling.
Investors hold different views on when the economic situation would improve as there are multiple headwinds that still remain. This is the reason why the Tangs want to delist the company, so they are able to obtain greater control to manage the overall business, optimise and streamline the resources to improve operational efficiency and effectiveness.
With the share price up 70% this year, investors have the option of cashing out at a premium to peers. Investors who cash out would then have the option of deploying to another undervalued play. Otherwise, should the delisting not succeed, investors may hold on and hope for the eventual recovery.
