Wing Tai GO: Pangolin not happy (3)

The Independent Advice is out and, as expected, the verdict is: "not fair but reasonable, accept".

More regarding this matter can be found on the following websites:

• The Star
• Serious Investing
• Off-piste investing
• Pangolin Fund

One snippet from the last source:

 .... unfortunately there is a ridiculous clause in the Malaysian Stock Exchange’s rules that insists on a 25% free float. This can be used as a weapon by potential acquirers of companies against minorities, as it is being used in this case. Basically, what WTS is saying is that once they get to 75%, the company will be in breach of the listing rules, that they will do nothing to rectify this breach and that they do not intend to maintain the listed status.

In Singapore, the minimum free float is 10%, which makes sense as it is in line with the compulsory acquisition threshold. I first complained about this crazy Malaysian ruling back in 2003 when Bumi Armada was privatised. Similar wording was used then. In the past couple of weeks, I have twice emailed Malaysia’s stock exchange chairman on this matter. No reply.

In a country where the majority of businesses are family-controlled, minorities need all the protection they can get. The current listing requirements make it easy for controlling shareholders to buy up their companies on the cheap. The authorities are failing investors.

Free float requirement for listed companies

Malaysia 25%

Indonesia 7.5%

Singapore 10%

Thailand 15%

This is indeed odd, and works very much against minority investors. The threat of holding shares in a company that might be delisted is not attractive to many, and definetely not to fund managers. And even if one would hold on, there is the chance that the shares will be mandatory acquired.

Pangolin's article continues:

The independent directors have appointed little-known Mercury Securities to give us independent advice. Cynics would contend that no board has ever appointed an Independent Adviser who will give guidance they don’t want.

In my very first blog posting in 2011 I wrote:

Immediately abolish all “Independent” Reports, they are useless and are even hurting the rights if the Minority Investors.

In every General Offer (GO) where the controlling shareholders want the minority investors to accept the (low) offer the recommendation will be "not fair but reasonable, accept".

When a GO is made according to the rules where the controlling shareholders want to keep the company listed, the recommendation will be "not fair, not reasonable, don't accept".

Independent reports give an undeserved air of credibility to the whole process of delisting, but in reality it is a complete waste of time and money.

In all those years since my first recommendation, basically nothing has changed. The wording used in the independent advice is now the rather curious "not fair but reasonable, accept" instead of "fair and reasonable, accept", and the quality of the independent report is somewhat higher, but the outcome is exactly the same, and minority investors basically don't stand a chance. 

Authorities should look into this matter and take concrete steps to level the playing field for minority investors:

• The free float requirement should be reduced in line with neighbouring countries
• Independent advice in the current form is a complete waste and even hampers minority investors
• Independent directors should be appointed by the non-controlling shareholders, not by the controlling shareholders
• The authorities should check if the controlling shareholders own or control shares held by nominees (so far enforcement in this matter seems to be close to zero)
• Funds (especially Government Linked Funds which have been notoriously passive) should be engaged in shareholder activism, especially in these kind of exercises
• Companies that are delisted should not be allowed to relist again; this would take away one of the incentives for delisting, since delisting will happen at a cheap valuation and relisting at a high one