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Stock Investment Research with an Asian focus

Pacific Century Regional Developments Ltd (PCRD)- Update

5/5/2015

 
Key developments since our first report:

  1. Two weeks after our report published on 16 April 2015, Business Times ran a similar article on 30 April 2015 highlighting the potential delisting of PCRD as well as a possible restructuring of the group:http://business.asiaone.com/news/pacific-century-headed-delisting (note: link is to the said article reproduced on asiaone.com as Business Times operates a paid platform that might not be available to all readers)
  2. In the same two-week period, PCRD's share price has advanced more than 28% to close at $0.445 on 30 April 2015. It has since cooled slightly to $0.435 as at 4 May 2015. 
  3. On 2 May 2015, PCRD released an announcement clarifying that "it is not aware of, and has not received, any proposal in relation to privatisation of the Company. In addition, the Company is not aware of any restructuring plan involving the Company and its subsidiaries."
  4. PCRD has successfully obtained a fresh mandate for share repurchases up to 10% of its shares and gone on to record its first purchase on 29 April 2015 at $0.405 per share, a sharply higher price than its previous purchase at $0.365 per share a week before.   

Our Views

We do not see the company's response as anything more than routine and it does not in our opinion reduce the likelihood of a privatisation happening in the future. It merely confirms that an offer or restructuring proposal has not been tabled or discussed officially as at the announcement date. 

Under the current regulatory regime, there are a few ways that PCRD's privatisation could take place: through a general offer, a scheme of arrangement, a voluntary delisting or a forced delisting by SGX due to low free float (<10%) coupled with an exit offer. Based on current circumstances, we see the last two as the most likely options. Both would require a reasonable exit offer to be tabled and the appointment of an independent financial adviser ("IFA") to opine on the fairness of the offer as stipulated in the SGX listing rules. We note that IFAs tend to benchmark fair value of a company's shares to the market prices of its underlying assets where such values are available as in the case of PCRD. As such, we do not expect any exit offer, if it materialises, to deviate greatly from the fair value computed using this methodology in order to obtain a positive recommendation from the IFA. 

Recommendations

We continue to believe that PCRD is undervalued although we note that the valuation gap between the current market price of $0.435 and the implied fair value of $0.542 which we previously computed has closed significantly to 19.7% (vs 36.4%). Downside risks though, should be limited as the Company has reconvened its share repurchases at a sharply higher price of $0.405 per share lending further support to the share price.  
Ascapia Capital
3/6/2015 06:05:12 am

Board of Directors

Pacific Century Regional Developments Limited

50 Raffles Place

#35-01 Singapore Land Tower

Singapore 048623

Open Letter to Board of Directors regarding recent share repurchases

Dear Board,

It has become apparent to us that Pacific Century Regional Developments ("PCRD") has

been aggressively buying back its shares over the past few weeks, with an acquisition of

103,000 and 474,100 shares at $0.405 on 29 April 2015 and 15 May 2015 respectively,

3,137,500 shares at $0.415 to $0.425 on 20 May 2015, and 3,151,700 shares at $0.44 to

$0.445 on 22 May 2015. While buying-back shares at less than intrinsic value is accretive to

all shareholders, the company is reducing its free-float rapidly and will soon be at risk of

breaching the 10% free-float requirement imposed by the Singapore Stock Exchange, and be

required to delist the company.

We believe that it is your intention to delist the company. If it is indeed your intention, we

would like to request for the Board of Directors to consider to offer minority shareholders a

truly fair price for their shareholdings. Precedent transactions in Singapore indicate that

minority shareholders are often ignored during the delisting process. Acquirers in Singapore

often appoint an “independent” financial advisor to justify the price that they want to pay and

minorities often lack the resources to dispute the outcome, even though they have received an

inequitable bargain.

The valuation of PCRD can easily be computed by any competent analyst, as most of its

assets are in liquid publicly-listed stocks such as PCCW Limited and HKT Trust. Our

calculations have led us to believe that PCRD is worth at least $0.57 per share or a premium

of 28% to the last on-market purchase you made on 22 May 2015. With only 14% of the free-
float outstanding, the company would only be paying a premium of $50 million for rewarding

minorities shareholdings for investing alongside you for all these years.

We believe that a decision by the company or its acquirers to repurchase the outstanding free-
float for a truly fair price would send a positive message to the markets that corporate

governance and minority shareholders do matter to PCRD and its controlling shareholders.

Sincerely,

Ascapia Capital


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