- 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)
- 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.
- 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."
- 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.
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.
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.