[SINGAPORE] W Capital Markets, the independent financial adviser (IFA) appointed by Sinarmas Land to opine on its privatisation offer by the Widjaja-family linked Lyon Investments, responded to criticisms by The Business Times and the Singapore Investors Association (Singapore) or Sias, arguing that its advice was “appropriate” and “consistent with widely accepted industry practice”.
Both parties had made claims on Monday (May 5) that the IFA’s valuation range for shares of Sinarmas Land was undervalued. W Capital Markets said in a letter addressed to the independent directors of Sinarmas Land on Monday that it “categorically refutes” these suggestions and that it had adopted the most appropriate methodologies in line with conventional industry practice by other IFAs in Singapore.
It had earlier said that the offer was “not fair but reasonable”, estimating a fair value range of S$0.35 to S$0.361 per share.
The Business Times’ Mark to Market column had questioned the IFA’s fair value, which W Capital Markets had derived from a sum-of-the-parts (SOTP) analysis of the company’s listed and unlisted assets. The columnist also questioned whether the IFA’s valuations captured the full potential of Sinarmas Land’s components, noting that the company’s assets could likely fetch prices in the private market that are “well above the valuations implied by their public-listed holding companies”.
In response, W Capital Markets said that its use of an SOTP valuation was appropriate given Sinarmas Land’s nature as a pure investment holding company, with no direct control over the assets held by the company’s listed subsidiaries that operate under separate management teams. The IFA also said that its role is not to speculate on and assess private market valuation frameworks that may alter a company’s value after a delisting, which the firm described as “fundamentally different”.
“Our adopted yardsticks for assessment do not deviate from conventional industry practice taken by other IFAs in Singapore,” the firm said.
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Sias had argued in its statement that the IFA’s valuation had “double-discounted” Sinarmas Land’s unlisted assets, both in its SOTP analysis which valued the assets at a 37 per cent discount to its revalued net asset value (RNAV), as well as applying a “holding company discount” of 20 to 22 per cent to its valuation.
The IFA responded that the company’s RNAV may not reflect fair value, as it does not account for additional costs including professional fees, liquidation costs or regulatory requirements, which could all reduce the realisable RNAV. It noted that comparable companies and past Singapore Exchange privatisations have typically been priced below net asset value and in such cases, were deemed to be fair and reasonable by IFAs.
W Capital Markets also defended its application of the holding company discount, stating that such methods are commonly practiced to reflect the market perception of risks involved in owning a holding company. Corporate expenses, tax implications from dividends and investors’ limited control over subsidiaries could also be the basis for such discounts, the IFA said.
“We strongly disagree with Sias’ view that there is double discounting,” said Wayne Lee, chairman and chief executive officer of W Capital Markets, arguing that the holding company discount is conceptually distinct from the SOTP methodology.
Shares of Sinarmas Land were trading flat at S$0.32 at 9.29 am on Tuesday.
