Much has been spoken since last Friday, 01st of March when the entity that carries the largest market capitalization of the Colombo Stock Exchange, Expo Lanka Holdings announced its intention to delist from the stock exchange with its majority shareholder extending a share buy back offer at 185 LKR per share.
As per the independent valuation done through by KPMG, the offer price reflects a 51.30 LKR premium to the Volume Weighted average price, a 58.80 LKR premium to the lower of the fair price range, a 34.60 LKR premium to the higher of the fair price range and a 118.96 LKR premium to the Net Asset Value of the company as at 31st December 2023.
The current offer reflects a premium but given the nuances of the market, several minority shareholders who entered the counter at much higher values have been debating against the current offer price with the hope of a better and higher price being set to reduce the losses they would have to incur should the delisting go ahead.SG Holdings Global Pte Ltd, the Japanese parent who owns 82.43% of the entity has categorically mentioned that there won’t be a second offer. Irrespective of the outcome of the EGM and whether the de-listing is proceeded or not, the final offer will be 185. Sources close to the said entity confirmed that even currently the standing offer is nearly 118 rupees above the net asset valuation of the company and hence any further consideration remains impossible.
Should the delisting not be approved with a 75% majority, the counter will start to openly trade. While there are a number of scenarios that could take place should it happen, analysts alike believe that the counter will be in a freefall. The counter last traded at 150.50 and still was above the actual value in a basic where the company had made repeated losses in four quarters at a row and projected losses to come. The only reason for the counter to even attract such a price was the rumor of a buyback from the ultimate parent and hence the soaring of the price. Many traders believe that should the delisting not proceed as planned, the buyers that entered the counter with such anticipation will exit the counter, resulting in a freefall of the share coming down to the early hundreds or even below.
As clearly showcased in a report that was shared by the Independent analytical firm “Network”, the share price soared to 400 around January 2022 directly in concurrence with the freight charges that spiked up at US$ 10,000. This was due to the COVID pandemic which is regarded as a once in a lifetime event which resulted in a 389% increase of profits.
While many profess that this will repeat in the foreseeable future, the reality is that it was a rare event that turned the tables and the probability of such an event happening anytime soon is next to nothing. The company has borne losses for the last 4 quarters with the current quarter also forecasted to incur losses. The projection for next year mentioned within the independent KPMG analysis is a breakeven performance whilst the company is expected to make gradual profits from FY 25/26 onwards. Hence even if you hold the shares for three years the best you would make out of the counter would be 166 where else the standing offer today remains at 185.
Most of the shareholders are currently contemplating on the losses they would ideally make in accepting the offer at 185 LKR per share where they would have entered the counter at the 250 – 350 LKR range when the share was once at its former glory.
Also should the delisting take place, the market will have an inflow of nearly US$ 210 million and as always the whole market will soar up allowing an opportunity for all to cover up the losses made. Hence a US$ 210 million inflow would create enough opportunity for the market to cover up the losses made.
