$0.95 Delisting Offer For Perennial Real Estate – Shareholders May Not Even Be Able To Reject It Eventually

A consortium has made an offer of $0.95 to buy shares that they do not own in a bid to privatise Perennial Real Estate (SGX:40S).

In case you want to revisit an article by TheBearProwl on DrWealth.com, they stated that Perennial was undervalued at a price of $0.50 on Nov 2019.

Below is a short video to highlight the main points of the Offer Announcement if you need help to interpret it.

Is This A Good Offer?

Perennial Real Estate has most of its assets in properties and hence book value or net asset value (NAV) would be a good measure of its value.

The latest NAV per share was $1.584. This means that the offer of $0.95 is undervalued, or at a 40% discount from its value.

The assets comprised mainly investment properties, development properties and associates and joint ventures (which are also investments in other real estate companies).

By country, Perennial has more assets in China than in Singapore.

But by revenue, Singapore properties contributed more than the China properties.

The investment properties in Singapore which are of higher value include Capitol Singapore and CHJIMES. They used to hold more properties until a series of divestments in 2019-2020.

In April 2019, Perennial together with its consortium sold their stake in Chinatown Point for S$520 million. Perennial made a gain of S$17.2 million.

In April 2020, Perennial divested the entire 30% stake in 111 Somerset for S$155.1 million, registering a pre-tax gain of S$25 million. It was sold to one of the companies owned by casino boss, Stanley Ho, who recently passed away and made the news too.

In May 2020, Perennial with its consortium of investors
jointly sold a 50% stake in AXA Tower to Alibaba, while jointly retaining a 50% stake in the property. Perennial’s effective stake will be reduced from 31.2% to 10% while making a S$45.0 million gain from the disposal.

The gains from selling 111 Somerset and AXA Tower have not been recorded in the balance sheet as they were transacted after 31 Dec 2019. This means that the NAV per share will even be higher. I have adjusted and estimated the NAV per share to be S$1.63. That means the offer of $0.95 would be a 42% discount from its value.

Come on. Similar to investors, the insiders would also want to acquire undervalued stocks. Including their own. So you can’t blame them being capitalistic about it.

Before you jumped at them. Let’s look at the historical trading price for Perennial Real Estate. The share price has been on a perennial decline (pun intended) since 5 years ago.

Shareholders wouldn’t benefit if the company stay listed given the downward trend of the share price and the miserable dividends given (<2% yield). Hence, why not meet in the middle by allowing the Offeror to buy these properties at a discount and shareholders could exit with something higher than the prevailing share price.

If the share price is trading close to NAV, the offer wouldn’t have come. Precisely a delisting offer would materialise when the share price is low – it becomes attractive for the insiders to privatise and they also see little value of staying listed since the market doesn’t value the stock well.

The Insiders

I first came across Pua Seck Guan (CEO of Perennial Real Estate) when he introduced Perennial Real Estate during a seminar held by Maybank Kim Eng. That was probably 10 years ago when Perennial has just listed.

I recalled that he had a successful career at Capitaland but decided to strike it out on his own. It was commendable as most high ranking corporate warriors are unlikely to make such entrepreneurial moves at the heights of their careers.

You can also see in his profile that he is concurrently the COO of another large listed company, Wilmar. I am not sure how he can hold two full time key appointments at the same time. Pua has a 10.41% stake in Perennial.

Pua definitely has a close working relationship with Kuok Khoon Hong, the boss of Wilmar. Pua is a COO and director in Wilmar while Kuok is the Chairman of Perennial. Kuok is also the largest shareholder in Perennial with a 36.53% stake.

Another billionaire, Ron Sim (the founder of OSIM), is the vice-chairman in Perennial Real Estate and has a stake of 15.45%.

The 3 of them and their entities have formed a consortium together with an external party, HOPU Fund Management (a China based fund) to make the delisting offer.

It Wouldn’t Even Be A Choice

The consortium has already hold 82.43% of the shares.

According to SGX’s listing rules, the listed companies need to have at least 10% of the shares to be held by the public. This means that the consortium just needs to gather another 7.57% to be able to delist the company.

The consortium has also declared the intent to activate the compulsory acquisition right if they receive the remaining 90% of the shares that they do not own. This means that even if shareholders do not accept the offer, the consortium can still buy over the shares without shareholders’ consent if the condition is met.

Given that the undertaking at 82.43% is very close to the 90% mark, I believe that the delisting is highly likely. The offer of $0.95 is also decent which I think many shareholders would accept it and take the chance to exit with some cash, even though the offer is at a discount of 42% to the net asset value.

I also believe that the consortium will collect enough acceptance of offers to effect the compulsory acquisition right. Hence, I don’t even think it is even a choice to accept this offer eventually.

CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.

This content was originally published here.

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