SINCE this column broached the topic of the lowball offer for Sinarmas Land five weeks ago, there have been two important developments.
After the market closed on Apr 23, it was announced that the offeror had received valid acceptances amounting to nearly 936.3 million shares, representing 22 per cent of Sinarmas Land’s total number of shares.
This increased the number of shares held by the offeror to more than 3.9 billion, representing a 92.3 per cent stake in the company. The offeror is a company called Lyon Investments, which is ultimately owned by a trust linked to Indonesia’s Widjaja family.
What could buyers of Sinarmas Land shares have been anticipating? On Apr 25, the independent financial adviser (IFA) appointed by Sinarmas Land, a firm called W Capital Markets, described the offer as not fair but reasonable.
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This means the offeror will not be able to take Sinarmas Land private unless it manages to breach the 90 per cent acceptance threshold, which would mean raising its stake to more than 97 per cent by the close of the offer.
The way I see it, there is now a fairly high chance that the offeror will raise its offer price.
Delisting conditions within reach
Two conditions need to be satisfied in order for Sinarmas Land to voluntarily delist in conjunction with the current offer. Its IFA must opine that the offer is both fair and reasonable, and the offeror must achieve an acceptance rate of at least 75 per cent.
With 936.3 million shares already in the bag, the offeror is now just a hair’s breadth away from achieving the 75 per cent acceptance condition.
By my calculations, the offeror would need to receive further acceptances amounting to only 11.7 million shares to cross the line. This would put its stake in Sinarmas Land at 92.6 per cent, up from the 92.3 per cent reported on Apr 23.
Sinarmas Land’s IFA also indicated in its letter to the company’s board that the offer currently on the table is not all that far away from being considered fair as well as reasonable.
The IFA estimated a range of values for Sinarmas Land shares of between S$0.35 and S$0.361. The bottom end of this range is only 12.9 per cent above the current offer price.
Raising the offer price for Sinarmas Land to S$0.35 a share would cost the offeror some S$50.6 million more, but it would also spur the rate of acceptances, and almost certainly result in the two key conditions for a clean delisting of the company being satisfied.
There is no certainty the offeror will improve its offer price, of course. Yet, the current offer price for Sinarmas Land seems rather stingy, even by the standards of a market where lowball offers are commonplace.
For instance, the offer price for Sinarmas Land was only 0.5 per cent above its volume weighted average price (VWAP) during the six-month period before the offer announcement. The offer prices for Singapore-listed property companies in precedent transactions going back to the beginning of 2022 were between 17.6 per cent and 77.5 per cent above their six-month VWAPs.
More significantly, the offer price for Sinarmas Land is just 0.36 times its net asset value (NAV) as at end-2024 of S$0.85 per share (excluding non-controlling interests). The offer prices for locally listed property companies in precedent transactions since 2022 ranged between 1.4 times and 0.76 times NAV.
Even if the offer price for Sinarmas Land were increased to S$0.35 per share, it would still be only 0.41 times NAV – significantly below the range of precedent transactions for Singapore-listed property companies.
Incorrect valuation basis
To be clear, I am not suggesting that minority shareholders of Sinarmas Land should be happy accepting an offer of S$0.35 per share. In fact, I would argue the IFA’s estimated range of values for Sinarmas Land shares of S$0.35 to S$0.361 is way off the mark.
This column has previously said that IFAs tasked with evaluating take-private transactions focus too much on comparing the valuations implied by the offer price with the public-market valuations of similar companies, and on the valuations garnered by public-listed companies in precedent take-private deals.
The IFAs tend to ignore how the basis of valuation might change once the target company is taken private. This was certainly the case with Sinarmas Land’s IFA, which used a sum-of-the-parts (SOTP) model to come up with its range of values for the company’s shares.
Here is what the IFA did: Sinarmas Land’s stakes in Jakarta-listed Bumi Serpong Damai Tbk (BSDE) and Puradelta Lestari Tbk – through which the bulk of its businesses are held – were valued at their one-month VWAPs.
For Sinarmas Land’s unlisted businesses, the IFA worked out their revalued NAVs (RNAVs) and then applied the mean and median discounts at which precedent take-private deals had been done. The mean P/RNAV implied by the offer price in these precedent transactions was 0.64 times, while the median P/RNAV was 0.63 times.
Then, the IFA applied holding company discounts of 20 per cent and 22 per cent to the sum of these various parts to arrive at the seemingly precise S$0.35 to $0.361 range of values.
In reality, the components of Sinarmas Land could fetch prices in the private market that are well above the valuations implied by their public-listed holding companies. This column previously pointed out that BSDE agreed last year to buy a 91.99 per cent stake in Suryamas Dutamakmur Tbk (SMDM) that was well above its NAV at the time.
The seller of SMDM was Top Global – another company linked to the Widjaja family, which was itself taken private in 2021 at a fraction of its NAV.
By accepting the Widjaja family’s lowball offer for Sinarmas Land, the company’s remaining minority shareholders will be excluding themselves from participating in any future value unlocking at the group. But if the offer price is raised enough to satisfy the conditions for a voluntary delisting, many of them won’t really have a choice.
