Pteris Global Limited - Did it alter the terms of the reverse takeover to favour the vendors?

15/4/2014 – Pteris Global Limited's board room fight has come out in public.

Mr Winston Tan Tien Hin - a substantial shareholder and non-executive director - has requested the company convene an extraordinary general meeting (EGM) and table his proposal to replace four independent directors and an executive director with four directors of his choice.

(Editor’s note: Pteris Global didn't reply to our questions on Mr Winston Tan's case against the company and its directors, but to our surprise its board of directors made a disclosure to the SGX in which it echoed our arguments to convince the shareholders to vote against the resolutions proposed by Mr Winston Tan.

Unfortunately, the latest announcement of the company didn’t address the questions we raised in this report.

As we were unable to get in touch with Mr Winston Tan, we had asked Pteris Global to forward our questions to him for his responses.

Naturally, we are very interested in hearing from him and will update this story in the hopeful event we received responses.

The story as we wrote it before Pteris’ announcement appears below).

Mr Winston Tan, through Winmark Investments Pte Ltd, owns a 10.18% stake in the company.

Winmark Investments Pte Ltd is jointly owned by Mr Winston Tan and his wife Ms Amy Lim Sioh Tin.

Mr Winston Tan is proposing to remove Mr Lim Joon Boon (the Non-Executive Independent Chairman and an independent director), Mr Zheng Zuhua (the CEO and an executive director), Ms Gan Siok Loon (an independent director), Mr Fong Heng Boo (an independent director) and Mr Robert Chew (an independent director).

In their place, Mr Winston Tan has proposed to appoint four new directors namely, Mr Lim Neo Chian (current Chairman of Ascendas Hospitality Fund Management Pte Ltd), Mr Wu Tze Chien (a consultant at Singapore Technologies Engineering Ltd), Mr Tan Han Beng (the Lead Independent Director of Challenger Technologies Ltd) and Ms Elaine Beh Pur-Lin (a partner of Virtus Law LLP).

Mr Winston Tan also wants the shareholders to re-appoint him as a director, in case he is ousted from the board before the EGM.

The next logical question should be - why is he calling for the changes to the board of Pteris Global?

In a notice (page 3) to the company on March 27, Mr Winston Tan says "the management and the current board has failed to build value for its shareholders, causing net asset per share to fall from above 20 cents as at the end of FY2007 to less than 7 cents as at the end of FY2013".

Also, Mr Winston Tan believes that the terms of Pteris Global Ltd's proposed acquisition of Shenzhen CIMC-Tianda Airport Support Ltd (CIMC-Tianda) are not in the shareholders' interests.

In a share-swap deal, Pteris Global proposed to acquire a 100% stake in CIMC-Tianda on February 6 last year.

CIMC-Tianda is a 70%-owned subsidiary of China International Marine Containers (Hong Kong) Ltd.

The remaining 30% stake is owned by Shenzhen TGM Ltd, which is wholly-owned by the management of CIMC-Tianda.

China International Marine Containers (Hong Kong) Ltd also owns a 14.99% stake in Pteris Global.

According to page 5 of its March 26, 2014 announcement, Pteris Global will pay for the acquisition by issuing new shares equivalent to 2.6 times its existing share capital.

In essence, that makes the transaction a reverse takeover of Pteris Global Ltd by CIMC International Marine Containers (Hong Kong) Ltd and Shenzhen TGM Ltd.

At Pteris Global's current market capitalisation of about S$76 mln, the deal values CIMC-Tianda at more than S$185 mln.

After the reverse takeover, CIMC International Marine Containers (Hong Kong) Ltd's stake in Pteris Global would rise to 54.82% from 14.99% at present, and Shenzhen TGM Ltd would own a 21.53% stake.

According to SGX-ST Listing Rules, Pteris Global would have to put the deal to shareholders for their approval.

But before that could happen, Mr Winston Tan has requested an EGM for changes to the board.

In his notice, Mr Winston Tan alleges that the terms of the deal are skewed in favour of CIMC International Marine Containers (Hong Kong) Ltd.

He also feels Pteris Global has been valued "very conservatively" in the deal.

In another point, he highlights that Pteris Global's FY13 loss widened while Mr Zheng Zuhua was the CEO.

However, Mr Zheng was appointed as Pteris Global's CEO only on November 12 last year.

Immediately before joining Pteris Global, Mr Zheng was an executive director of CIMC-Tianda.

In the notice, Mr Winston Tan also raises objections about different standards for valuing CIMC-Tianda and Pteris Global.

He also feels that the board of Pteris Global didn't make "sufficient efforts to obtain offers from other vendors or RTO contenders".

For these and many more reasons, Mr Winston Tan is proposing a new set of directors be appointed to the board which will review the terms of the reverse takeover and explore "all potential alternatives to enhance shareholder value".

Our reading of the various announcements raise important questions for both Mr Winston Tan as well as the parties he is trying to remove from the board.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Why did Mr Winston Tan not act earlier?

Mr Winston Tan joined Pteris Global as an independent director on March 5, 2012 (refer page 5 of FY12 annual report).

By that time, he already had an 11.3% stake in the company.

And according to page 5 of the Code of Corporate Governance 2012 (released on May 2, 2012), an independent director must not own more than a 10% stake in that company.

Probably that's why Mr Winston Tan was re-designated as a non-executive director in Pteris Global's FY12 annual report.

In any case, Mr Winston Tan has been a director of Pteris Global for more than two years, before his March 27 notice to overhaul the board.

In his notice to the company, Mr Winston Tan points out that losses accumulated to S$32 mln from FY2008 to FY2012.

Of that, S$29.7 mln was accrued during FY2012. Mr Winston Tan became a director on March 5 of that year.

In the notice, he claims the FY2012 loss was incurred as the company had been "engaged in non-profitable projects".

Any reasonable investor's obvious reaction would be - what did Mr Winston Tan do to improve the situation, as he was a director of Pteris Global's for a good part of FY2012?

Similar questions arise from Mr Winston Tan's charges regarding the reverse takeover of Pteris Global by CIMC-Tianda.

In his March 27 notice, Mr Winston Tan claims the terms of reverse takeover are not in the interests of Pteris Global's shareholders.

Instead, he says, the terms are beneficial to China International Marine Containers (Hong Kong) Ltd which is the co-vendor of CIMC-Tianda and also is the single largest shareholder of Pteris Global with a 14.99% stake.

But a lot has happened on his watch.

On February 6 last year, Pteris Global announced a Memorandum of Understanding (MoU) to acquire a 100% stake in CIMC-Tianda.

On July 29, Pteris Global announced an agreement with China International Marine Containers (Hong Kong) Ltd, to acquire a 70% stake in CIMC-Tianda.

On November 12, it announced an agreement with Shenzhen TGM Ltd, to acquire the remaining 30% stake in CIMC-Tianda.

On the same day, it announced the appointment of CIMC-Tianda's former executive director Mr Zheng Zuhua as Pteris Global's CEO and executive director.

Since then, Pteris Global has announced supplementary agreements on November 28, January 6 and March 26.

Therefore that makes us curious that why Mr Winston Tan didn't object to terms of the deal earlier than he did on March 27.

Also, now that he is seeking to remove Mr Zheng Zuhua as an executive director of Pteris Global, one wonders why he didn't object at the time of his appointment in November.

Question

2. How are only independent directors responsible for management's decisions?

Mr Winston Tan has proposed to remove the four serving independent directors of Pteris Global.

They are: Mr Lim Joon Boon (the Non-Executive Independent Chairman), Mr Zheng Zuhua (the CEO and an executive director), Ms Gan Siok Loon (an independent director), Mr Fong Heng Boo (an independent director) and Mr Robert Chew (an independent director).

Mr Lim Joon Boon was appointed to the board on May 1, 2011.

Ms Gan Siok Loon was appointed to the board on August 11, 2010.

Mr Robert Chew was appointed to the board on March 5, 2012, as was Mr Fong Heng Boo.

In the absence of any further disclosure in Mr Winston Tan's notice on March 27, we wonder the basis on which he believes that the independent directors are responsible for Pteris Global's performance from FY08 onwards, when none of them was a director for FY08 and FY09.

Also, two independent directors, Mr Robert Chew and Mr Fong Heng Boo, were appointed to the board along with Mr Winston Tan in March 2012.

So, how could they be responsible for Pteris Global's losses from FY08 to FY11?

On page 3 of the March 27 notice, Mr Winston Tan says "The management and current Board have failed to build value for its shareholders, causing net asset per share to fall from above 20 cents as at the end of FY2007 to less than 7 cents as at the end of FY2013".

The "current Board" of Pteris Global includes Mr Winston Tan.

And by proposing to remove the four independent directors, along with the recently appointed executive director, he appears to be holding them accountable for the entire board's actions.

What about the remaining five non-independent directors, including him?

Total number of questions in the full story: 9)

We emailed these questions to the company (investor.relations@pterisglobal.com), at 4:51 pm on April 10, to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

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