Farewell, ARA… What I learned from my very last meeting with ARA Asset Management

The Scheme Meeting of ARA Asset Management was concluded yesterday, 23 March 2017. A total of 1,056 shareholders and proxies attended the Scheme Meeting held at Suntec Singapore Convention Centre. 857 of them voted in favor for the Scheme of Arrangement to privatise ARA Asset Management at $1.78 per share. When the poll result was shown onscreen, a few shareholders cheered: “Huat ah!”

While the majority of investors at the meeting were certainly happy about the poll outcome, the 199 shareholders who voted against may not necessarily be so. As it is, this will probably be my last article about ARA and I will wrap it up with what I learned at my very last meeting with them.

Before the poll was conducted, investors were given the chance to speak. Mano Sabnani, a long-time investor, was the first to speak and disagreed with ARA’s first rationale for privatisation — Opportunity for Scheme Shareholders to Realise their Investment at a Favourable Valuation. Sabnani viewed that the offer price was favourable for short-term traders but from a long-term perspective, $1.78 a share is underpriced.

He said: “I think in your heart, you are buying us up because you know this is going to worth much more in the future. Maybe even $5 a share might not be too low. You offered us a small carrot and show us to the exit sign. I think it is not fair for long-term shareholders.”

Sabnani also commented on ARA’s second rationale — Continued Growth Requires Significant Capital. Mano diligently referred back to ARA’s IPO document and he pointed out that raising capital was the same reason why ARA listed in the first place.

He asked: “So, what has changed? Nothing has changed. The growth rate as a public company has been good. Your business model remains the same. If you need to raise fund as a public company, you have the bank to borrow money from, big shareholders to support you and you can do placements. The argument that it takes time to raise funds doesn’t apply.”

In response, John Lim, CEO of ARA, explained that the main difference between IPO and now is the scale of ARA. When ARA first listed, its assets under management (AUM) was only $7 billion. Today, ARA’s AUM has grown fivefold to $36 billion. For ARA to continue growing at the same clip, it needs to raise larger and larger amounts of capital. Justin Chiu, Chairman of ARA, also explained it is not necessarily easy for the company to borrow money from the banks because ARA is just a fund manager with an asset-light business model. Given the relatively small size of the company (market cap of $1.76 billion), he thinks it is not possible to borrow the required amount of money needed to grow the business moving forward.

Sabnani also argued that, although unpopular with some shareholders, issuing rights is a fair way of raising capital; everyone is entitled to them. He advised Lim not to entertain ignorant investors who emailed him to complain about a rights issue because of short-term negative implications on share price. In any case, investors can also choose to sell their nil-paid rights if they don’t wish to subscribe to them. Sabnani pointed out that ARA’s last rights exercise was in fact oversubscribed proving that many investors were more than happy to support the company in raising more capital for growth.

A shareholder, who wasn’t in favor with the Scheme, also strongly voiced his opinions.

He said: “We have to be realistic. We can’t have everything we want. So why don’t we decide what growth we can afford and grow it at that range. If you can continue to grow at the rate in the past, that’s excellent — you have done a fantastic job with Suntec REIT and some other REITs too. You’ve built up an excellent team. So, I do not want to give it up. I want you to stay with that team, restrict your growth a little bit and grow at a rate better than any Singapore-listed company, and I want to be a shareholder of it. So, I will strongly recommend to all the shareholders to turn the scheme down!”

As he finished his speech, a round of applause was heard around the room.

He continued: “And even if we lose the vote, let’s do a job of protesting about this proposal. I don’t think $1.78 is enough. I would say this Scheme is not in the interest of the 3,000 small shareholders. So, I strongly recommend all you people here to vote against the scheme. Thank you.”

Despite the fervent comments and rebuttals from the other side, at the end of the day, every investor (excluding John Lim, Cheung Kong and Straits Trading who all abstained) had to make their own decision. As I mentioned at the start of the article, the majority decided to vote in favour of the Scheme and ARA will now be privatized. The only thing left now is the court’s approval, which is pretty much a formality. After that, ARA will be delisted from the SGX and shareholders can expect to receive their payments by 21 April 2017.

There is no argument that ARA is a well-managed company with a scalable business model led by an excellent CEO and team in place. It is sad and unfortunate for existing long-term investors, including The Fifth Person and many of our readers, to bid goodbye to the company.

On behalf of several long-term shareholders who’ve stuck with ARA through thick and thin for many years, I want to sincerely thank the management of ARA for tirelessly working hard and growing the company to where it is today over the past ten years. ARA is a paragon of how a public company should be managed, and considers its minority shareholders. The board and management team have always been transparent and extremely candid with minority shareholders in the AGMs I’ve personally attended. Even at the last, at this Scheme meeting, minority shareholders were still given the right to vote by head-count whether or not to proceed with the privatization. Even if we had 100 shares or 10 million, we all had one equal vote. While not everyone was willing to sell at $1.78, the majority preferred to exit and we all made money investing in ARA. So credit goes to them!

Thank you, Justin Chiu, John Lim, and the rest of the ARA! We wish you great success in your new phase of growth and to achieving $100 billion in AUM.

Well done. We will miss you!

Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

4 Comments

  1. lawrence quek

    March 24, 2017 at 10:59 am

    very good commend and observation. thanks

  2. Gursharan Singh

    March 24, 2017 at 11:01 am

    Taking private undervalued companies may be referred to as PIRATIZATION and may also be perceived as ‘legal frauds’. This may be common in many countries.

    It may be a common practise for some substantial/controlling shareholders not to equitably reward shareholders by giving dividends which may be substantially lower than the achieved profits resulting in low share prices which do not reflect the value of the company assets. This then thus enable the substantial/controlling shareholders to take the company private and enjoy the full market value of the company assets.

    This is well illustrated by the above comment voiced at the AGM:

    He said: “I think in your heart, you are buying us up because you know this is going to worth much more in the future. Maybe even $5 a share might not be too low. You offered us a small carrot and show us to the exit sign. I think it is not fair for long-term shareholders.”

    Similar cases have been suspected to have happened in some land assets rich Malaysian companies.

    Such a situation can only arise when there is co-operation [or may be more appropriately be perceived as collusion’] among the parties involved and the experts who give their advice to support such ‘privatizations’ who may claim to be ‘independent’ but it is common perception that one must support the one who pays you for your services. Such partisan actions may also be due to weak procedures or laws which may not provide for fairness.

    IN SUCH CASES IT MAY BE APPROPRIATE TO SUSPEND TRADING OF SHARES ON A PARTICULAR DATE AND THEN ANNOUNCE ‘DISPOSAL OF ALL THE ASSETS IN THE OPEN MARKET AND THE PROCEEDS DIVIDED AMONG THE ENTITLED SHAREHOLDERS. ALTERNATIVELY THE PRIVATISATION SHARE PRICE SHOULD BE BASED ON CURRENT MARKET VALUE OF THE REAL ESTATE ASSETS.

  3. mark mah

    March 24, 2017 at 11:32 am

    TQvm for your summary. I did not attend this meeting. I had been attending ARA AGM every year before. I was impressed by the Board’s intelligent observations on their business, n the patience they had shown to some disgruntled shareholders, who seemed to divert from the business at hand. I think video recordings of the way they conduct their AGMs should become Case Studies in local business schools? ARA had left behind a valuable legacy in Business n Board Management?

    • Gursharan Singh

      March 25, 2017 at 8:45 am

      Authorities should require of distributions of major portion of profits say minimum of 75% as this will ensure that share prices arr traded at realastic prices.
      Several Malaysian Bursa listed companies with substantial foreign ownership practice this maximum dividend culture and this may be the reason for the high prices of companies like BAT NESTLE DUTCH LADY UNITED PLANTATIONS.
      Keeping share prices low via low or non distriburion of profits coupled with accounting of land/other assets at substantially low valuations may be invitations to possible Mismanagement and/or Frauds and/or PRIVATIZATION of companies all of which can provide to those in positions of power.
      Accounting Standards or Laws or Regulators or Enforcement or justice system may provide little if any remedy especially to minority shareholders and who may not be able to get any confidence from the stated ‘independent’status of the Auditors or Members of the Board or Audit committee.
      Views are based on AGMs and silence of AC members or their Reports and Auditir’s Certificates all of which provide little information of their findings.

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