Mar 24, 2014

    M&A bug may do market good

    MARKETS were briefly shaken up last week by comments from Dr Janet Yellen, the new chief of the United States central bank, that seemed to hint at earlier-than-expected interest rate hikes.

    But, even if not for Dr Yellen, there was still plenty of drama on the local front to keep traders occupied.

    It was a busy week for the Singapore Exchange (SGX) as it fired off a volley of queries to companies experiencing unusual trading activity. At last count, seven were queried. Six were given "trade with caution" notifications as their explanations did not relate to corporate developments.

    But it is with regard to the seventh queried firm - Albedo - that traders may have to tread with care. Albedo requested to resume trading today, after plunging 42 per cent in just over an hour on Wednesday morning before trading was halted.

    This was in the wake of a report by Malaysia's The Star newspaper that Malaysian businessman Danny Tan was aborting his deal to inject his Johor land assets into steel trading firm Albedo.

    Since August, Albedo has featured among the most actively traded counters because of the proposed land deal, so any scuttling of the deal would be a big blow to traders.

    The small-cap market is already reeling from big losses after Asiasons Capital, Blumont Group and LionGold Corp inexplicably crashed in October.

    The likelihood of Albedo's deal pulling through is uncertain.

    In a statement released on Friday, Albedo said that in a meeting held that day, Mr Tan's representatives had requested that the sale and purchase agreement (SPA) for the deal be "mutually terminated".

    Albedo added: "Under the terms of the SPA, neither party is entitled to unilaterally terminate the sale and purchase agreement."

    This leaves traders wondering if the firm will try to salvage the deal, or try to seek compensation if the deal fails to close.

    Separately, there is the baffling case of massive undersubscription for Unionmet's one-for-two rights issue at 7.5 cents apiece. The firm said last week that only 18.44 per cent of the non-underwritten rights issue was taken up. The counter had ended the week down 9.1 per cent at 6 cents.

    So far, there is no disclosure as to whether Unionmet's management or substantial shareholders had supported the cash call, which was supposed to raise up to $22 million to fund the company's new property development business and oil blending business.

    Remisiers are now wondering why the indium ingot maker would have undertaken the fund-raising if it could not enlist the support of company insiders.

    Remisier Rose Chan said "this is one issue which the SGX should really look into, and stamp a 'trade with caution' (label)" if it is not satisfied with the firm's explanation.

    These troubling developments aside, the gathering pace of mergers and acquisitions (M&A) may set traders' pulses racing.

    The latest counter to catch the M&A bug, Goodpack, disclosed that it has been approached by undisclosed parties for discussions that could potentially lead to a takeover offer. Goodpack, listed on the SGX mainboard, provides packaging solutions, including for the automotive parts industry.

    A DBS Vickers report said: "While Goodpack's founder, Mr David Lam, who has a controlling stake of 32 per cent, is open to a takeover offer, we believe current low valuations could be a hurdle, given that the auto parts business could be the X factor for further re-rating of the stock."

    Traders may also have to make sure they are not caught wrong-footed by any nasty news breaking on the regional front.

    Citi Investment Research said China funds suffered an all-time-high weekly outflow of US$1.5 billion (S$1.9 billion) last week. The bulk of the outflow - US$1.3 billion - was due to investors offloading their exchange-traded funds.

    The situation for Japanese funds was equally dismal. "In the week which ended March 14, Japan saw US$9.6 billion of net selling by foreigners, the largest amount of selling in a week since 2001," said Citi.

    As the last trading week of the month kicks off today, dealers can look forward to the news juicing up trading activities.