Value investor Chua Bock Eng has written to Low Keng Huat’s board of directors asking the independent directors to engage with the offeror, to seek an improvement in the offer price. A fair compromise should, at the very least, match the book value of 79 cents, he says.
The offeror is a company with a paid up capital of $3 owned by Consistent Record Sdn. Bhd (CRSB). Low Keng Huat's managing director Marco Low Peng Kiat and his mother own CRSB. Low and his mother also have a deemed interest of 54.13% in Low Keng Huat.
In his letter, Chua has politely requested that Low Keng Huat’s independent directors ensure that the independent financial adviser (IFA) highlights Low Keng Huat’s revalued net asset value (RNAV) in the circular to shareholders.
“Because many of these are legacy assets, their carrying costs are significantly below current market prices.
"Our estimates suggest an RNAV of approximately $1.37 per share. While we understand that privatisation offers rarely capture the full RNAV, the substantial gap between 72 cents and $1.37 suggests there is ample room for the offeror to improve the bid without compromising the commercial viability of the deal,” Chua says in his letter.
Although the offer price of 72 cents is close to NAV, it still represents a discount of approximately 9%, Chua points out. Given that Low Keng Huat has always adopted prudent and conservative accounting policies, the book value likely represents a "hard floor" of the company's worth, he says
See also: Paramount hiked Warner Bros break-up fee to US$5b, Bloomberg reports
Low Keng Huat owns properties such as Paya Lebar Square, Lyf @ Farrer, and Duxton Hotel Perth (see table).
On Nov 28, the managing director of the construction company turned boutique developer, Low, made a voluntary conditional general offer for all the shares in the company at 72 cents per share.
See also: Goldman Sachs to pay US$2 bil for ETF issuer Innovator Capital
Low is of the view that the company is unlikely to require access to the Singapore equity markets in the foreseeable future, as funding can be met through bank borrowings and other debt financing options. Low also believes that the privatisation will help to save on listing costs and will enable the company to have more flexibility in navigating the challenging business environment.
In addition, Low believes he will have greater control and flexibility in managing the group’s business, such as making much longer-term capital allocation decisions, and dispensing with the constraints of capital market regulations and public shareholders’ expectations.
Low Keng Huat shares closed at 72 cents on Dec 2, up from 62 cents before the offer was tabled.
