Delisting – not such a bad deal

The recent news of NOL and Otto Marine's planned delisting from the SGX should come as no great surprise. Nor, indeed, should it be seen as bad news for the local market. If the regional capital markets have taken a hit this year, then that could be doubly said for energy gas and shipping sectors.

In these sectors business confidence is down, share prices have taken a hammering, and there is a great deal of market uncertainty. In times like this, shareholders nervously look at where the bottom of the market might be, while other stakeholders feel like the assets are under-valued.

This environment is prime territory for taking companies private – giving shareholders some return on their investment, while giving the businesses agility, autonomy, and flexibility they may not have answering to a large group of shareholders. Put simply, some investors are hoping that, in taking a company private, they are buying at the bottom.

Delistings can be viewed both ways – the loss of some major money for some investors or rich pickings for others. It all depends on the motivation and payoffs offered in the privatisation deal.

Given the shattered market confidence in the O&G industry, a delisting may make sense for some companies especially those trading below their intrinsic value. For some shareholders a privatisation may offer an acceptable way out on an investment which was turning sour.

For such companies, a voluntary delisting, with a cash-out payment to its shareholders, can yield substantial operational savings as a private company. This may be another aspect of what these companies need to do in order to survive in a depressed market. Although actual annual listing costs are not high in Singapore, there are other costs and regulatory requirements associated with running a listed business.

As a listed company on the SGX, there are requirements to provide regular shareholder reports, which can require a significant amount of management time. Listed companies also have various obligations to shareholders, which may make it much harder to restructure operations and to implement diversification and recovery strategies.

By going private, a company can focus on managing the business, only answering to a small handful of investors. In the wider market, increased M&A activity (which usually accompanies such a delisting) is welcome news as it will see some much needed market consolidation, in this sector which will hopefully and eventually lead to a rehabilitated and more vibrant O&G industry.

For the SGX, this is a case of putting on a brave face and trying to put a positive spin on companies going private. While an exchange's business and revenue is made from active listings, in the long run it is better to have strong and solid companies in the stable. If some need to take time 'going private', that is a small price to pay for stability and overall quality.

It's easy to get caught up in the 'bad press' of delistings. But for shipping and oil & gas companies, this may actually be a good thing. In an environment where restructurings and capital are desperately needed, the options open to a private company are looking very attractive.