CWT Limited - OCBC Investment 2017-07-11: One Step Closer To Voluntary General Offer (VGO) But Stay Cautious

CWT Limited - OCBC Investment 2017-07-11: One Step Closer To VGO But Stay Cautious CWT LIMITED C14.SI

CWT Limited - One Step Closer To VGO But Stay Cautious

  • CWT Limited’s (CWT) offeror, HNA Holding Group (HNA), recently provided an update that the anti-trust pre-conditions had been satisfied. That said, before a formal voluntary general offer (VGO) can be made, there are two other preconditions to be fulfilled or waived: 
    1. there being no material adverse effect in relation to CWT’s fundamentals (can be waived by HNA), and 
    2. HNA shareholders to approve the acquisition at a general meeting (cannot be waived), for which two major shareholders of HNA with a combined stake of 66.8% have given undertakings to vote in favour of the acquisition. 
  • While it seems a step closer to a VGO materializing, we advise investors to stay cautious as China banking regulator was also recently reported to be probing into overseas loans made to HNA Group, which we believe creates uncertainty over whether the deal will go through. 
  • HNA stated that in the event external financing is not available, it will finance the acquisition solely through an interest-free unsecured fund to be provided by HNA Group’s associates. 
  • All said, with no visibility over the outcome of the probe on HNA, it makes sense for shareholders to reduce their risk by selling part of their holdings in the market with risk-reward skewed to the downside (our Fair Value Estimate on CWT without the deal is S$1.95). 
  • Our rating of ACCEPT THE OFFER, once the formal VGO is made, remains unchanged.

Eugene Chua OCBC Investment | 2017-07-11
OCBC Investment SGX Stock Analyst Report ACCEPT OFFER Maintain ACCEPT OFFER 1.950 Same 1.950