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Role of independent financial advisers under scrutiny

The role of independent financial advisers has come under spotlight due to the recent delisting attempts from the Singapore Exchange.

SINGAPORE: "Boilerplate advice" or "meaningless jargon" - that is how the Securities Investors Association of Singapore (SIAS) has branded some reports penned by independent financial advisers, or IFAs.

These advisers are appointed to provide an independent view on takeover offers. "I think the IFA reports are meant to assist independent directors, who could then advise the board on whether the price is fair, if the offer is fair, and whether it can be substantiated by facts. If it can stand on the advice, then retail investors will be told, this is the price and the company finds it reasonable," said Mr David Gerald, president and CEO of the Securities Investors Association Singapore.

However, some market observers say there are increasing doubts over the independence of these advisers and the usefulness of their reports.

Recently, SIAS called for RDL Investments to revise its bid for LCD Global. It was acting on behalf of minority shareholders, who felt that the offer of S$0.17 a share was too low, compared to the net asset value of S$0.27. The IFA report had indicated that the offer is fair, based on the stock's historical trading price.

One criticism has been that many IFAs simply compare the offer price, with the share price and net asset value and that may not be good enough.

"Neither of them may indicate what the real value of the company is. So, for example, in other settings, quite often, we will look at what is the present value of the future use of the asset? That's what we look at. You could do something similar - there may be an alternative use for the company, or for the asset, that creates more value than the net asset value, for example," suggested Associate Professor Mak Yuen Teen from the NUS Business School.

SIAS also says it has observed that in some cases, when an offer had been revised multiple times, the IFA had at each time assessed the offer as fair. It describes this as "mind-boggling".

But takeovers are rarely straightforward.

Recently, CapitaLand managed to regain control of CapitaMalls Asia to take it private, only after raising its offer price. 

Similarly, a consortium led by property tycoon Ong Beng Seng, had to raise its buyout offer for Hotel Properties Limited a second time, to S$4.05 a share.

HPL says the new offer is final. The closing date for acceptances is Thursday (June 12).


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