9 March 2023


Asian Investors Make Their Point

A new and astute generation of allocators is enabling activist investing to grow in Asia.

Since the accumulation of wealth started later in Asia than in Europe and the U.S., the pools of money managed by family offices and owned by high-net-worth individuals on average are younger in the region. They are often still invested by the founders of the family businesses, whose preoccupation is keeping the operations going rather than investing the money made through those operations.

Now a new generation is taking over the reins. They more often have an academic degree, studied abroad for some time, and are educated in both the operational and the financial aspect of a business. They know that it makes sense to diversify a portfolio across different strategies. In particular, they are aware that being an equity investor you have rights and that you are entitled to make your voice heard when it comes to corporate governance and to the right course of action for your investment.

Take Boustead Projects, a Singaporean developer of industrial real estate. On 6. February 2023, Boustead Singapore said it would make a general offer for Boustead Projects at S$0.9 per share.

However, investors clearly expressed their opinion that this was not enough. Shares in Boustead Projects jumped about the general offer price, closing at S$0.91 the following day. This was followed by the stock climbing steadily over the next two weeks to as high as S$0.99.

What was new was the speculation that Boustead Singapore would raise its offer price. Investors realized that the offer at S$0.9 severely undervalued Boustead Projects. After all, Boustead Projects had reported a net asset value of S$1.265 per share as of 30. September 2022. So still buying Boustead Projects at S$0.9 or even S$0.99 made sense as investors could reasonably expect that the offer might be sweetened.

Investors’ assessment turned out to be right when Boustead Singapore on 22. February said it would raise the offer to S$0.95 and added there would be no further increases.

One might argue that some investors might be disappointed now – especially if they bought Boustead Projects at more than S$0.95. Still, this might not be the end of the story:

If Boustead Singapore gets its hand on 90% or more of Boustead Projects, they can seek to delist Boustead Projects at S$0.95. However, if Boustead Singapore has less than 90% in Boustead Projects, shareholders in Boustead Projects can hope for even better terms in a new offer.

So, it pays off for Singapore investors to be patient and wait. Years ago, they would just have followed the advice of the independent financial advisor and happily tendered their shares at S$0.9, helping Boustead Singapore to fill their pockets.

Another example is Mapletree North Asia Commercial Trust (MNACT). The Reit had more than 50% of its rental income contributed by high-quality buildings in Tokyo, Beijing, Shanghai and Seoul, making it one of the highest-yielding Reits in the region.

However, MNACT also had the Festival Wall mall in Hong Kong in its portfolio. Festival Walk had suffered extensive damage due to street protests in November 2019, prompting the shares to fall. And since it reopened in January 2020 following repairs, the mall had been bogged down by the closure of the Hong Kong-China border due to the Covid-19 pandemic.

In December 2021, Mapletree Commercial Trust (MCT), which has the same sponsor as MNACT, made an offer for MNACT, which, as many investors saw it, severely undervalued MNACT. Quarz Capital also wrote a letter pointing to the undervaluation.

The proposed trust scheme would see MNACT unitholders receive a scheme consideration of S$1.1949 for each MNACT unit held – either via 0.5963 new MCT units at an issue price of S$2.0039 apiece, or a combination of 0.5009 consideration units and S$0.1912 in cash.

However, since the announcement shares in MCT declined, changing the dynamics of the proposed merger and putting MNACT unitholders at a severe disadvantage. With the price correction, the implied scheme consideration for MNACT was now at a significantly lower level of about S$1.08 to S$1.10. In addition, the implied merger offer was at a massive discount of about 12 percent from MNACT’s NAV of S$1.23 in October 2021.

After listening to investors’ complaints, the managers of MCT and MNACT came up with a revised offer of S$1.1949 with an option fully in cash, in the eyes of Quarz Capital a fair offer and a win-win for all parties.

Again, questioning the terms of the first offer required investors to be critical of the terms and to speaking up against them. This was certainly helped by a younger, and often more educated, generation of investors.

But it’s not only Singapore.

In Australia, shareholders in mining company Essential Metals got a substantial corporate-governance boost when London-based hedge fund Odey Asset Management took at 9.95% stake in Essential Metals in February.

Essential Metals had been the subject of a takeover offer by a joint venture consisting of Chinese lithium giant Tianqi Lithium Corp. and Australian IGO Ltd. The A$136 million bid for Essential included the Pioneer Dome project in Western Australia, an undeveloped mine with estimated total reserves of more than 100,000 tons of lithium.

Many investors felt that the offer of A$0.50 in cash per Essential share undervalued the mining company. Still, it was unclear whether enough Essential shareholders would reject the merger proposal.

Having Odey Asset Management as a major shareholder must have come as a relief to shareholders looking for backing in potential renewed negotiations. They understand that the new dynamics might enable them to call for better terms in a potential next round of negotiations.

Boustead Projects, Mapletree North Asia Commercial Trust and Essential Metals – Asia’s informed investors are increasingly advocating good corporate governance.