|Rarely has there been a single share purchase, by a Singapore listco insider, as massive as that by Delong Holdings' executive chairman, Ding Liguo, two days ago.
Mr Ding sits atop Delong, which is an S-chip specialising in the manufacture of hot-rolled mid-width steel coils.
On 1 June 2018, Mr Ding's investment vehicle, Best Decade, entered into a sale and purchase agreement with two institutional shareholders -- Evraz Group S.A. and Vollin Holdings.
The deal was for Best Decade to acquire 16,569,599 and 2,522,100 shares of Delong from Evraz and Vollin, respectively.
In aggregate, Best Decade -- which is jointly owned by Mr Ding and his spouse, Madam Zhao Jing, bought a 17.33% stake from the two shareholders.
Evraz is among the top steel producers in the world and is listed in London. Vollin is a private vehicle of Alexander Abramov who is one of the two heads of Evraz (Source: Wikipedia).
With the acquisition -- which cost US$100,865,354, or US$5.28 per share -- Best Decade now owns a 75.56% interest in Delong.
In SGD terms, the S$7.07 transacted price is
♦ ... a 60% premium to the S$4.41 that the stock closed at on the SGX on 1 June 2018.
♦ ... a 22% discount to Delong's net asset value of S$9.10 a share as at end-March 2018.
On a 12-month trailing PE basis, the transacted price still looks cheap at a PE of 2. (Note: there was a RMB374 m one-off gain in the 2017 net profit of RMB2.1 billion).
For EVRAZ, the transaction resulted in a very large realised loss. Its average purchase price was S$13.88 per share (based on purchases it made in 2008 and 2009), adjusted for a 1-for-5 consolidation in 2016.
|Given the size of his purchase, how is Mr Ding financing it?
Delong currently has a strong balance sheet to support dividends (see table) after emerging from several years of challenges as China's steel industry struggled with overcapacity and environmental issues.
Delong does not have a track record of paying dividends. It last declared a dividend in 2008 -- ie, 10 years ago!
By the way, it listed on the SGX through a reverse takeover of Teamsphere in 2005, making it one of the earliest S-chips and one of the rare survivors.
For more, see: @ DELONG's EGM: 10 takeaways from positive meeting