Options and Considerations For Privatisations in

Singapore
MARCH2011 CORPORATE

LUCIENWONGAllen&GledhillLLP

LEEKEEYENGAllen&GledhillLLP

Lucien Wong and Lee Kee Yeng at Allen & Gledhill LLP o er their highly sought a er
expertise on privatisations in Singapore.

Amid the lingering uncertainties over the economy and the easing
valuations in the market in 2009 and 2010, 33 companies, with an
aggregate market capitalisation of approximately S$15.4 billion, were
privatised and delisted from the Singapore Exchange. While the list of
privatisations included strategic acquisitions led by sovereign wealth funds
Lucien Wong and Lee Kee Yeng
such as ATICs acquisition of Chartered Semiconductor Manufacturing Ltd
(which was delisted from the Singapore Exchange in December 2009) and Khazanahs o er for Parkway
Holdings Limited (which was delisted from the Singapore Exchange in November 2010), a significant
number of privatisations were initiated by major shareholders seeking to capitalise on lower valuations,
as listed companies continued to trade below their 2007 peaks. Market observers anticipate that more
such privatisations and delistings may be in the pipeline for 2011 as acquirers continue to take
advantage of current valuations and the recovery in the credit markets.

WhyPrivatise?

Companies go public in order to raise funds from the market but a listing also requires a company to
continually meet its regulatory obligations. Companies seeking to delist o en cite illiquidity, costs of
compliance and lack of operational flexibility as the key motivations for privatisation. In addition, many
Chinese companies who had previously sought an overseas listing are now tempted by the prospect of
re-listing closer to home at higher valuations. Such companies hope to benefit from greater investor
interest in exchanges in China or Hong Kong, where shares may trade at higher multiples and investors
may be more familiar with their brand names. O -cited examples of such success stories include
Want Want Holdings Ltd (a Singapore company with its principal operations in Taiwan and China),
which delisted from the Singapore Exchange in 2007 and was subsequently listed in Hong Kong at three
times the value of its privatisation o er, and Man Wah Holdings Limited (a Bermuda company with its
principal operations in China), which delisted from the Singapore Exchange in 2009 with a market
capitalisation of S$200 million and was subsequently listed in Hong Kong with a market capitalisation
of S$1.2 billion.

A Singapore-listed company (both foreign as well as Singapore incorporated) can be taken private in
several ways: (i) a voluntary delisting; (ii) a scheme of arrangement (for a Singapore incorporated
company); (iii) a general o er; and (iv) an amalgamation (for a Singapore incorporated company). Each
of these is briefly considered below.

VoluntaryDelistings

Under its listing rules, the Singapore Exchange will permit a Singapore-listed company to be voluntarily
delisted if: (i) the delisting is approved by more than 75 per cent of shareholders present and voting
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with not more than 10 per cent of such shareholders objecting; and (ii) (following the approval of the
delisting) an exit o er is made to the shareholders, which must normally be in cash or include a cash
alternative. If the delisting is approved, the company will be delisted whether or not shareholders
choose to accept the exit o er. Acquirers who are already major shareholders of the company can vote
their shares to approve the delisting together with the minority shareholders. As this can significantly
reduce the execution risk for the transaction, a voluntary delisting is generally the route taken by
existing major shareholders seeking to privatise a company.

In order to protect minority shareholders, the Singapore Exchange requires a reasonable exit o er to
be made to the remaining shareholders of the company. The board of directors of a delisting company
is required to take into account the interests of all shareholders as a whole and must ensure that the
exit alternative is a reasonable proposal when making its recommendation for a delisting. The company
must appoint an independent financial adviser to opine on whether the exit o er is reasonable and
such opinion must be clear and unequivocal without reference to diverse investment horizons.

Whether an exit o er is reasonable continues to be a sticky issue in the market, especially in relation to
shares that trade below their net asset value. Acquirers should therefore remain sensitive to
shareholder reaction as to the consideration o ered. While the delisting transactions for 2009 and 2010
have generally o ered a premium above the closing share price prior to the transaction announcement
date, some of the delisting transactions were made at a price lower than the net asset value of the
company. This has been a hotly debated issue in a number of voluntary delistings, where minority
shareholders objected voraciously. Whether rightly or wrongly, the net asset value of the company will
remain a benchmark for some shareholders as reflecting the true value of the shares and major
shareholders looking to privatise must be prepared to defend their valuations.

Although the use of a voluntary delisting does not guarantee the buy-out of the minorities, once the
delisting is approved, there is the disadvantage of remaining as a shareholder of illiquid shares in an
unlisted company, and this o en provides the motivation for minority shareholders to accept the exit
o er. If minority shareholders do not accept the exit o er, the company will still be delisted, with
minority shareholders remaining in the company. Acquirers using the voluntary delisting route must
therefore assess whether their post-delisting objectives can be achieved with minority shareholders in
place, and the potential exit strategies for these minority shareholders therea er.

SchemesOfArrangement

Where obtaining 100 per cent of the shares is key to the acquirers plans for the company post delisting,
a scheme of arrangement may be preferred as it provides the comfort of a binary outcome either
compulsory buyout of all shareholders if the scheme is successful or the acquirer does not have to
acquire any shares. A Singapore-listed and Singapore incorporated company may enter into an
implementation agreement pursuant to which it agrees to undertake a scheme of arrangement for the
acquisition by the acquirer of all its issued shares in accordance with section 210 of the Companies Act
(chapter 50 of Singapore, the Companies Act). The scheme requires the approval of the majority in
number of shareholders present and voting, representing 75 per cent or more in value of the shares
voted. The scheme is also subject to approval by the High Court of Singapore.

Major shareholders looking to privatise may be disadvantaged in a scheme of arrangement as, unlike a
voluntary delisting, they would not be permitted to vote on the scheme and the decision would be
entirely in the hands of minority shareholders. In addition, as a scheme must be approved by a majority
in number present and voting on the scheme, the transaction could be defeated by a large number of
shareholders holding a very small number of shares.

GeneralOffers
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Voluntary delistings, schemes of arrangement and amalgamations (discussed below) require the co-
operation of the target company. If this is not expected to be forthcoming, an acquirer would need to
consider implementing the privatisation by way of a general o er for the company. In addition, where
there is substantial interloper risk, a general o er structure allows an acquirer to retain greater
flexibility in its ability to respond to a competing bid. Where the intention is to privatise, the o er
should be conditional upon the acquirer receiving acceptances for more than 90 per cent of the
outstanding shares of the company. If the acquirer holds more than 90 per cent of the company, the
listed company would no longer meet its free float requirement and the Singapore Exchange would
direct that the company be delisted if the acquirer does not restore the free float a er the close of the
o er. In addition, if the acquirer receives su icient acceptances to exercise its rights of compulsory
acquisition under the Companies Act, it can squeeze out the minority shareholders who have not
accepted the general o er.

Amalgamations

Where the Singapore-listed company is also a Singapore incorporated company, the privatisation could
take place by way of an amalgamation under section 215A of the Companies Act. Amalgamations are
akin to US-style mergers in which a merging entity is absorbed into an acquiring entity. The acquirer
and the listed company would enter into an agreement to implement an amalgamation of the two
companies with the acquirer as the surviving company or with both companies merging into a new
company. The amalgamation must be approved by not less than 75 per cent of the shareholders of each
amalgamating company, and the board of directors of each amalgamating company must give a
solvency statement, stating its belief that the amalgamated company will remain solvent for the next 12
months. On completion of the amalgamation, the Singapore-listed company will be delisted and cease
to exist as a separate legal entity and all its property, rights, privileges, obligations and liabilities will be
transferred to and vest in the amalgamated entity.

The provisions for amalgamations under the Companies Act were introduced in Singapore in 2005.
While amalgamations have been used to e ect internal restructurings, we have yet to see a
privatisation in Singapore being implemented by way of an amalgamation. There are several possible
reasons for this. First, acquirers remain understandably reluctant to be the test case for a new
acquisition structure. In addition, directors on the board of a public company are likely to be wary of
providing a forward looking solvency statement for the amalgamated company on a consolidated basis,
as they are personally liable for such statements. Lastly, as with a scheme, major shareholders looking
to privatise would not be permitted to vote on the amalgamation and this invariably increases the
execution risk of the transaction.

* * *

Delistings are part and parcel of a functioning capital market. As companies continue to review their
valuations in the a ermath of the financial crisis, and look to strategically reposition themselves for
better market conditions, privatisation will remain a key option for consideration. In determining the
most appropriate transaction structure, acquirers must assess which structure allows them to
adequately manage their execution risks while achieving their objectives for delisting.

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