A surprisingly large number of local stocks trade at hefty discounts to their net asset values (NAV), in particular property-related stocks. In many cases, liquidity is low. A prime example is Frasers Property (FPL). On April 6, FPL announced that an extremely dilutive rights issue that was meant to raise $1.28 billion was only 90% subscribed and raised only $1.15 billion. Since both Thai Beverage and TCC Assets took up their share of the rights shares, the Sirivadhanabhakdi family now control 88.89% of FPL, leaving a free float of just 11.1%. As at April 12, FPL was trading at a 55% discount to its pro forma postrights NAV of $2.25. However, it managed to eke out a gain compared to its theoretical ex-price or $1.224.

Elsewhere, Guoco Group privatised GL with a final offer of 80 cents, up from an initial offer of 70 cents. This was still at a discount to its last reported NAV of 72.3 US cents. The rationale for privatising was because of challenging business conditions. GL’s trading was suspended on April 5 as its free float fell below 10% in March.

According to Eng-Kwok Seat Moey, group head of capital markets at DBS Bank, companies explore privatisations for mainly two reasons. The first is to unlock greater flexibility when undertaking a major restructuring exercise to streamline and re-focus resources on new strategic objectives or core operations. A private company would provide management greater autonomy and flexibility in implementing changes and using its management and capital resources.

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