THE Securities Investors Association (Singapore) or Sias, is recommending that Golden Energy and Resources (Gear) minority shareholders reject the exit offer by the controlling shareholders.

Minority shareholders have been asked to accept the distribution in-specie of Gear’s Gem stake and the cash alternative at S$0.792 per Gear share.

In an e-mail to Gear’s board of directors, David Gerald, president of Sias, said that the independent financial adviser (IFA) had conflated the two corporate actions of the exit offer and the distribution of Golden Energy Mines (Gem) shares. This was despite the issue being highlighted as a concern in a press statement by Sias after meeting Gear representatives.

Gear’s offeror, Duchess Avenue – a company linked to the Widjaja family – has offered S$0.181 per share, with the offer linked to the distribution in-specie of Gear’s Gem stake. The IFA, W Capital Markets, issued a “fair and reasonable” opinion on the delisting proposal.

Gerald wrote: “Clearly, SGX RegCo’s reminder to the IFA regarding the utilisation of appropriate valuation methodologies and the necessity for analysis supported by reasonable grounds and assumptions capable of withstanding scrutiny has seemingly fallen on deaf ears.”

Referencing Monday’s (May 29) edition of the Mark to Market column in The Business Times, (“Golden Energy’s delisting: IFA opinion is faulty”), Sias said that it has from the onset cautioned the IFA against conflating the two corporate actions. In the column, senior correspondent Ben Paul had pointed out that the IFA has reduced the value of the Gems distribution in its model by as much as 42 per cent from 6,500 rupiah (S$0.58) to between 3,773 and 4,277 rupiah.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Subsequently, the IFA’s sum of the parts value for Gear was between S$1.041 and S$1.104.

Sias questioned the new valuation metric introduced by the IFA, enterprise value (EV) to trailing 12-month (TTM) earnings before interest, taxes, depreciation and amortisation (Ebitda). This approach generalises companies that are too different, especially one going private with no future price discovery.

The inclusion of a 0.44 EV/TTM Ebitda Indonesian company as comparable to Gear was also questioned by Sias. The company is only a fifth of Gear’s size, and its selection lowered the EV/TTM Ebitda ratio.

There are a number of questions Sias has for the IFA, such as: How was the TTM Ebitda metric calculated, and was it from audited results? How does the market capitalisation of the selected companies, which ranged from US$354 million to US$6 billion, impact the multiple?

“There are simply too many judgment calls made that only prompts further questioning of the IFA’s approach,” said Gerald.

While Sias acknowledged that there are many ways to value companies and there is no single method that is universally accepted, it noted that the IFA has heavily emphasised the EV/TTM Ebitda metric, leading to a lower bound.

The opinion of the IFA does not withstand scrutiny nor meet the expectations set by SGX RegCo, said Sias. It called on the IFA to incorporate more valuation methodologies in its analysis and justify any judgement calls in the process.

Sias is urging the minority shareholders to make their voices heard by making their vote count. The resolutions require 75 per cent approval from minority shareholders. But the resolutions are inter-conditional.

“Should minority shareholders reject the exit offer, Gear will remain on SGX holding on to its valuable Stanmore stake along with Gems. After months of hard work, shareholders go back to square one,” said Gerald.

Shares of Gear closed up 1 per cent or S$0.01 at S$0.955 on Tuesday.