UOB Kay Hian says the latest takeover bid for Hwa Hong Corporation is fair and reasonable, and while noting that recent moves by the SGX-listed firm’s board might help to boost value or bring a higher offer, recommended that shareholders consider the recently sweetened bid as the best deal currently available to investors in the property firm controlled by Singapore’s feuding Ong family.
On 7 June, an investor group led by Hwa Hong’s former managing director, Ong Choo Eng, raised its offer for the SGX-listed company to S$0.40 from S$0.37, valuing the firm at roughly S$261 million ($188 million).
The group, known as Sanjuro United, includes Roswell Assets, Dymon Asia Private Equity and Crystalic Star Global, as well as Ong Choo Eng’s son and fellow substantial shareholder Ong Eng Yaw. Sanjuro already has the support of shareholders with control of 24.3 percent of the company, but to push through the privatisation will require the support of at least 50 percent.
In an analysis released Monday, UOBKH noted that Hwa Hong’s current board has appointed an exclusive financial advisor, Evercore Asia Singapore, to assist the company in maximising shareholder value, which could include soliciting potential offers or assessing other offers that may emerge against Sanjuro.
“While the appointment is promising and could see the emergence of a competing bid, shareholders will need to also assess the downside risk if the Sanjuro offer fails and there is no competing bid,” the brokerage said.
Provenance Capital, which was appointed as independent financial advisor on 26 May, said last week that the revised price was “fair and reasonable” and advised shareholders to accept the bid vehicle’s offer for the company, which has been subject to a power struggle between Ong Choo Eng and his five brothers.
Sanjuro made its offer to privatise and delist Hwa Hong on 17 May, arguing that the company’s state of affairs was “highly unsatisfactory”. Before the proposal, the company had been called out by the Singapore Exchange over concerns regarding disagreements within its boardroom that eventually resulted in the exodus of independent board members, including former chairman Mak Lye Mun.
When Mak, a former CEO of CIMB Bank Singapore, stepped down on 4 May as independent chairman of the company, his action left the board with no independent members and in violation of the SGX requirement for listed companies to have at least two independent board members.
With no independent members, Hwa Hong became majority-controlled by certain close family members and other substantial shareholders, according to Sanjuro.
The members of the Hwa Hong board at the time of the offer included Ong Eng Hui, who became a director in June 2021, as well as Ong Eng Keong and the current acting group managing director of the company, Ong Eng Loke. All three are sons of Ong Choo Eng’s brothers.
Ong Eng Keong was appointed a non-independent, non-executive director on 25 April, while Ong Eng Loke was added to the board on 5 May, at a time when the company already had insufficient independent board members to form a nominating committee, Sanjuro said.
On 26 May, amid the conflict arising from inadequate independent representation on the board, Hwa Hong released a statement saying that the three sons, along with fellow directors Ong Mui Eng (a brother of Ong Choo Eng) and Huang Yuan Chiang, would release a suggestion to shareholders in light of the offer as independent directors, contending that they had no “irreconcilable conflict of interest” with respect to the privatisation bid.
Discount to RNAV
In its analysis, UOBKH said the revised offer of S$0.40 a share represents a discount of 21 percent to the adjusted revalued net asset value of S$0.5052 a share estimated by Provenance and a 40 percent premium to Hwa Hong’s net asset value of S$0.285 a share.
Hwa Hong is primarily engaged in property rental, investment and development. It was founded by the late Ong Chay Tong and was eventually shared with his six sons, including Ong Choo Eng.
The company has businesses in Singapore and the UK. In 2021, the company saw a 39.1 percent year-over-year increase in profit after tax to S$5.8 million.