With more than half of Singapore equities trading below their net worth, some investors are chasing profits by buying shares in companies that may be bought out or delisted by controlling shareholders or takeover firms.
“Investors are looking for takeover candidates because prices have come off significantly,” said Justin Tang, a director of global special situations at Religare Capital Markets in Singapore. “We may see an increase in delistings and takeovers this year because of this.”
Global Logistic Properties Ltd., a warehouse operator, is among companies targeted for takeover by firms including Blackstone Group LP, Warburg Pincus and Hopu Investment Management, according to people with knowledge of the matter. GLP shares have risen 55 percent since the start of November amid reports the company may be acquired.
Property and oil and gas-related companies offer good value for potential buyout or takeover premiums, said Christopher Wong, a Singapore-based fund manager at Aberdeen Asset Management Asia Ltd. Aberdeen funds hold shares in Wheelock Properties Singapore Ltd., which trades at 0.69 of its book value and has founding investors controlling about 76 percent of the shares.
“If stocks continue to be in the doldrums, then the probability of them being privatized is higher,” Wong said.
Wheelock, Mermaid Maritime Pcl and Dyna-Mac Holdings Ltd. are among potential buyout candidates trading below book value, said Carmen Lee, head of research at Oversea-Chinese Banking Corp. “Inexpensive” valuations mean companies or individuals with cash are likely to consider taking over or delisting some undervalued stocks this year, she said.
All three companies are controlled by no more than three shareholders, are profitable at earnings before interest, tax and depreciation and amortization level, and have a debt-to-equity ratio of less than 50 percent, according to Bloomberg data.
Wheelock Properties gained as much as 2 percent Tuesday on volumes at more than three times of its three-month average, Mermaid Maritime rose as much as 3 percent and Dyna-Mac 1.7 percent.
Auric Pacific Group Ltd., which on Tuesday got a cash offer at S$1.65 per share for a 23.3 percent stake from a company owned by Stephen Riady and CEO Andy Adhiwana, jumped 13.4 percent. Riady is the chairman of property developer OUE Ltd. and executive director of Auric Pacific.
Rival QAF Ltd. rose as much as 4.6 percent after the Auric Pacific announcement.
Not all investors are prepared to take the risk of investing in potential targets of buyouts that may not eventuate.
“It’s very difficult to pre-empt when the delisting may happen or if it will happen at all unless there’s information leaks, and that’s very risky” said David Gerald, president of the Securities Investors Association of Singapore, an industry group representing shareholders.
Investors who held stakes in 20 companies including SMRT Corp., OSIM International Ltd. and HTL International Holdings Ltd., which were bought out last year, got a one-year median return of 23 percent on their bets before trading was halted, more than that of the Straits Times Index.
The city’s benchmark stock index is the second cheapest among major peers in Asia after South Korea, based on its price-to-book value of 1.19, after ending last year little changed and falling 14 percent the year earlier.
“You’ve got to be patient and buy cheap and hopefully some of these companies will be privatized,” said Wong. “Clearly there are opportunities.”