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By Nisthar Cassim
Most of the minority shareholders are already excited over the staggering Rs. 63 billion plus opportunity to sell their stakes in Expolanka Holdings to controlling owners the Japanese owned and Singapore-based SG Holdings Global Pte Ltd.
Owning 82.4% SG Holdings on Friday announced a voluntary delisting of shares of Expolanka from the Colombo Stock Exchange at Rs. 185 per share. One of the leading logistics companies in the world, Expolanka is also the most valuable listed company on the CSE with a market capitalisation of over Rs. 294 billion. Its share price closed at Rs. 150.50 prior to suspension of trading pending the delisting announcement.
Expolanka co-founder, livewire and Group CEO/Managing Director Hanif Yusuf who owns 7.5% stake has consented to the offer which means, SG Holdings has already secured 90% stake. The balance 9.9% stake in Expolanka is held by 20,850 shares as at 31 December 2023 down from 23,169 in FY23. As per analysts they are primed for a collective windfall worth Rs. 36.2 billion.
The Company has made public an Independent Professional valuation on the Company’s shares by KPMG and having taken cognisance of the range of valuations provided the Board is of the view that the Exit Offer remains, as at date, an attractive and fair price for the Shares, and represents a premium over the value per Share attributed by each of the different and updated share valuation methodologies applied.
The Board of the Company wishes to point out that the Exit Offer of Rs. 185 per share.
a. Reflects a Rs. 51.30 (38.4%) premium to the Volume Weighted Average Price over the last three months period ending 31 December 2023, a Rs. 45.20 (32.3%) premium to Volume Weighted Average Price over the last six months period ending 31 December 2023 and a Rs. 32.40 (21.2%) premium to Volume Weighted Average Price over the last 12 months period ending 31 December 2023
b. Reflect a Rs. 58.80 (46.6%) premium to the lower of the Fair Price range and a Rs. 34.60 (23%) premium to the higher of the Fair Price range determined by the DCF Methodology in the aforementioned independent valuation; and
c. Reflects a Rs. 118.96 (180.1 %) premium to the Net Asset Value of the Company as of 31 December 2023.
Taking into account the independent valuation, the share performance of the Company in the last 12 months period and the Net Asset Value per Share of Rs. 66.04 as at 31 December 2023 being the latest publicly available information, the Board is of the opinion that the Exit Offer represents a substantial premium over the fair price for the Shares and recommends its acceptance to its shareholders.
KPMG considered a combination of valuation methodologies namely, Discounted Cash Flow Methodology (DCF), Net Asset Value methodology (NAV) and Volume Weighted Average Price (VWAP) in arriving at the equity value range of Expolanka Holdings PLC. The discounted cash flow (DCF) approach has been used as the primary valuation method to estimate the fair value of Expolanka Holdings PLC. Under this approach, the fair value of the respective sectors was valued independently and aggregated to arrive at the Total Fair Value of the Group Based on the DCF approach the estimated equity value per share ranges from Rs. 126.20 – Rs. 150.40. The Volume Weighted Average Price (VWAP) over the last 12 months ending 31 December 2023 was also considered in assessing the fair value of Expolanka Holdings PLC. Accordingly, the value of Expo ranges from Rs. 133.70 per share (3 Months VWAP) to Rs. 152.60 per share (12 Months VWAP).
Based on the above, the value of Expolanka Holdings PLC ranges from Rs. 136.9 (DCF) to Rs. 152.60 (VWAP) per share as at the Valuation Date, according to the circular issued to Expolanka shareholders.
The Exit Offer is final and unconditional. Shareholders are not obliged to accept the Exit Offer and those shareholders who wish to retain their shareholding in the Company after the proposed delisting of the shares will be entitled to do so.
To get shareholder approval an EGM has been convened on 27 March where a show of hands will be followed. The de-listing is also subject to regulatory approval. A company’s delisting requires the approval of a special resolution at an EGM, with over 75% of the shareholders voting in favour. (Voting power is equal among shareholders, meaning one shareholder gets one vote, regardless of the number of shares they own).
Daily FT learns most of the minority shareholders are primed to accept the exit offer. 17 of the largest public shareholders account for 35% of 194 million shares or 9.9% stake that is open for the exit offer.
The second largest public shareholder and founder director Farook Kassim who holds 12 million shares or 0.6% as well as the Founder Chairman Osman Kassim and other directors Sattar Kassim and Shafik Kassim have expressed their full support to the SG offer. Osman Kassim who is also Chairman Emeritus of Aberdeen Holdings recalled that SG Holdings always conducted themselves in a transparent manner in keeping with their Code of Governance and have at all times acted in the interests of the minority shareholders.
In 2014, SG Holdings acquired 30% additional stake of the then top five shareholders for a purchase consideration of Rs. 6.3 billion or $ 49 million. The stake amounting to 586 million shares was done at Rs. 10.70 each. Existing four directors Osman Kassim, Satter Kassim, Shafik Kassim, Farook Kassim shed 5% each from their existing stakes of 14.5% each whilst Group CEO Hanif Yusoof sold 7% stake.
Some analysts and shareholders however are of the view that Rs. 185 offer is under-valued. One reason is the stellar run Expolanka shares enjoyed post-COVID following high freight rates due to supply chain disruptions. The other is the future upside given successive acquisitions Expolanka Group made a few years ago in North America and Europe and freight markets rebounding due to tensions in the Red Sea.
In FY22, Expolanka share peaked to its highest ever price of Rs. 405, a lowest of Rs. 43.10 before closing at Rs. 207.75. In FY23, EHL’s shares highest price was Rs. 243.25, lowest was Rs. 90 and closed at Rs. 138. Analysts also pointed to SG paying higher prices than Rs. 185 in FY23 to collect available Expolanka quantities. SG Holdings’ buying into Expolanka was largely responsible for 10-year high Rs. 30.7 billion net foreign inflow to the Colombo stock market in calendar year 2022. Since the end of FY23 SG hadn’t bought any Expolanka shares.
Expolanka management sources said for the past successive five quarters, Expolanka performance had been under severe stress whilst in 3Q of FY23 it reported a Rs. 5 billion loss and first nine months loss was Rs. 12 billion.
Showing signs of being Sri Lanka’s new unicorn in FY22 Expolanka posted the highest ever profit of Rs. 73 billion on Rs. 684 billion turnover. In FY23, however, in tandem with challenges in the global freight market, profit slumped to Rs. 31 billion on Rs. 546 billion turnover.
Past and the future
SG Holdings Global Pte Ltd., acquired control of the company by purchasing 51% of its shares in or about June 2014. SG Holdings Global Pte Ltd., in turn is a subsidiary of SG Holdings Co Ltd., which is listed on the Tokyo Stock Exchange. SG Holdings Co Ltd., offers delivery services, planning, overseas operation, strategy formulation and capital financing services and serves customers worldwide.
The SG Holdings Group of Companies has aided the growth of Expolanka Holdings PLC over the years by facilitating working capital and M&A funding activities, improving governance structures, and enhancing policy frameworks.
In its circular to shareholders, the Board said the operations of Expolanka Holdings PLC are global in nature requiring it to be operationally efficient to be internationally competitive. Since SG Holdings Co Ltd., is listed on the Tokyo Stock Exchange and has the ability to effectively fund the operations of Expolanka Holdings PLC through its subsidiary SG Holdings Global Pte Ltd., which presently holds 82.43% of the shares of Expolanka Holdings PLC, and having long term global expansion plans, the Board of SG Holdings Pte Ltd., and SG Holdings Co. Ltd., are of the view that it is not required for its international arm, Expolanka Holdings PLC, residing in Sri Lanka to remain a listed entity for capital raising.
“More relevantly, the capital requirements of Expolanka Holdings PLC will become increasingly international in nature, requiring it to raise capital from outside of Sri Lanka in foreign currency.
Since this infusion will necessarily have to be mostly in the form of borrowings from the parent company in foreign currency there will be a high forex risk to the local investors which may potentially impact shareholder wealth,” according to the circular. The Company said it will continue to comply with Sri Lanka’s statutory reporting and compliance requirements and focus on delivering on its promise to the country and its people. As previously, the Company will navigate market complexities in a fast-revolving business environment while continuing to drive sustainable growth as it strives to gain market share as one of the top-tier logistics companies in the world.
