Over the past few months, the Singapore stock market has witnessed a succession of privatisation exercises. Companies that have delisted include OSIM International, China Merchants Holdings, and Eu Yan Sang International to name a few. Forecasts suggest mild consolidation for the Asian markets though, thanks in large part to fears of a rate hike and slump in the price of crude oil.

What’s more, if the Singapore stock market follows recent positivity in Europe and the US, made possible by the decision to unlock €10.3 billion in new bailout loans to Greece, there could be plenty of promise for investors, especially via a leveraged product like CFD trading. So, why are companies in Singapore delisting?

Details of recent delistings in Singapore

In March 2016, OSIM International’s founder Ron Sim launched an offer to take the company private. This was followed in May by the majority owner of China Merchants Holdings’ decision to acquire all the company’s shares it did not already own.

Earlier this month, Eu Yan Sang International also announced that chief executive Richard Eu made an offer to take the company private with the help of other investors including family members and Temasek, one of the Singapore government’s investing arms.

In its fiscal year ended 30th June 2015, Eu Yan Sang saw net profit figures fall from S$15 million to just S$4.6 million. Furthermore, profit shrank by over 90 per cent from $8.2 million to just S$634,000 in the first nine months of FY2016.

However, its particularly interesting to note that at the firm’s share price of S$0.65 just prior to the buyout offer, it was valued at 1.8 times book value, meaning Eu Yan Sang has had an average price-to-book ratio of 2.0 over the past three years.

Reasons for recent delistings in Singapore

One of the many problems listed companies face is keeping track with management responsibilities while at the same time providing quarterly or half-yearly reports to investors. Listed companies on Singapore’s stock market must also answer to public shareholders, making it harder for struggling businesses to implement turnaround strategies successfully.

Therefore, if a company decides to go private, it can realign attention on managing core operations with the diminished responsibility of answering to a small handful of investors. However, it is imperative that companies strike the right privatisation deal to satisfy the interests of all parties.

Instead of going voluntarily with a general offer, like most delistings, the potential acquirer of Lantrovision recently picked a “Scheme of Arrangement” method for privatisation, which requires a court meeting and vote. Due to its valuation angle, this could have put shareholders in a disadvantageous position, but as Stanley Lim Peir Shenq, CFA explains, a favourable arrangement was agreed upon.

“As part of the deal, the company’s three co-founders and all its employees will remain employed after the buyout. As for the minority shareholders, the buyout price is higher than any price at which the company’s shares have been trading at since late 2012.”

Contributor / Sophie Davidson