IFA stands its ground on valuations in Sinarmas Land offer; says methods used ‘appropriate' and in line with practice
[SINGAPORE] W Capital Markets, which is advising Sinarmas Land's independent directors on the Widjajas' offer to privatise the company, insists its valuations of the group's assets are 'appropriate' and 'consistent with widely accepted industry practice'.
The independent financial adviser (IFA) was responding to concerns raised by the Singapore Investors Association (Singapore) or Sias, and The Business Times columnist Ben Paul in his Mark to Market column.
Both parties had argued that the IFA's valuation range for Sinarmas Land shares was undervalued.
In a letter addressed to Sinarmas' independent directors on Monday, W Capital said it 'categorically refutes' these suggestions and that it had adopted the most appropriate methods in line with conventional industry practice by other IFAs in Singapore.
It had earlier said the offer from Widjaja-family linked Lyon Investments was 'not fair but reasonable', estimating a fair value range of S$0.35 to S$0.361 per share, derived from a sum-of-the-parts (SOTP) analysis of the company's listed and unlisted assets.
BT columnist Ben Paul had questioned the IFA's fair value and whether its 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'.
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In response, W Capital Markets said the SOTP method 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. On the view that IFAs tend to ignore how the basis of valuation might change once a target company is taken private, W Capitals said its role was not to speculate on and assess private market valuation frameworks that may alter a company's value after a delisting.
'Our adopted yardsticks for assessment do not deviate from conventional industry practice taken by other IFAs in Singapore,' the firm said.
Sias had charged 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.
As for the holding company discount, it said such methods are commonly applied 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 3 pm on Tuesday.
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