NEWS ANALYSIS Backdoor listings back in vogue? Better fund access, sentiment revive interest in reverse takeover deals by MICHELLE TAN REVERSE takeover deals, ‘whieh in rocontyoars have Seon waning interest be- cause of the global reces sion, appear w be making a feomebuek thanks to greater faceoss to funds and a more Duoyant markot climate Two examples are PNE Micron Holdings and Kyo- ‘orAllied Industries. Both these listed. companies have recently announced the intention to undertake RTO transactions * Also known as a "back door” listing, ain TO is an alternative listing method ‘havallows a private compa ny to oblain a listing on a stock exchange, sue as on ‘he mainboard or th Gata Ist board of the Singapore Exchange (SGXD. Althongh seh a move needs the pr fir clearance of the ex: ‘ange, Ht helps the isting aspirant avoid the relative Iy tedious and eostinton- sive process of an initial public offering (70), RTOs usually do notin: volvo any form of pro-fund raising from the public, as ‘opposed to an IPO. In fact the objectives isting sta. fus and any fund-raising from the public will subse- ‘quently take place under a separate transaction. Potential targets for TOs aro usually dormant, loss-making listed entities that have ite cr no key op- crating assets let. For instance, Fastube Limited, another listed eom- pany that has RFO plan Was loss making for the past two financial years, ogistoring losses atbuta: ble to equity-holders. of 446. milion yuan and 99.7 milion yuan Tor the finan tal yoats ended Dee 31 0 and Doe 31, 2009 re: spectively Listed entities that are the targets of RTOs ae also usually, plagued by low ‘day-to-day trading volumes tnd relatively “stagnant share prices Tut what makes RTOs potnntially more attractive than IPOs in today’s mar- et For one, going puble via ATO‘s los sty ag an on @erwrter is: not required “and Involves ts stock dil tion than that offered in an Po, More pertinently, an TO fs loss susceptible to ‘market conditions. A stan ard IPO is usually riskier Tor companies as tho trans faction Is rellant on market fonditions = a factor that neither management nor ‘he vestment banks have control over. In contrast, an RTO deal Anvolves only the manage- ‘ment and controlling par- ties of both the listed com- pany and private company. This being so, dire market conditions would have rela- tively limited hearing. on the outcome ofthe listing RTOs also require a shortor period before the Unlike an initial public offering, a reverse takeover is less susceptible to market conditions. For instance, the recent uhquake that hit Japan ‘lumpened damand for the Hutchison Port Holdings “Trust IPO. This resulted in the trust plummeting. as much as 6.9 por cont on its bt trading day, Furthermore fa comps dy undergoing an TPO isin fan industry that suddenly undergoes @ down period for is hit by negative media, stones may turn away from the deal and park thelr funds elsewhere, potential: ly tggering pull back in the isting date private company achieves a Tite status as compared to ‘a conventional IPO. The ‘any months and son times even years taken to put an IPO together may furn out to be deteimental to the completion of an IPO, ‘spocially when market con ditions then adverse. ‘Another plus factor is {hat many shell eompanios foc RTO tangots usualy have past negative earnings Uo furry forward. These are losses ineurred in previous years that ean be applied to ‘fb taxable nonin st ‘sequent years, thus sholtr BT aan Ing future income from in More interestingly, lst ed companies that recently fannounced thelr intention to undergo an RTO usually roport an offer price that is fata promium to the last ‘raded share price prior to the announcement, Tako, for example, PNE Micron. "Tho company’ not- fd thatthe acquisition will be pald via the issue of 2.65 billion now PNE Micron or- Ainary shares at a pres of B.S cants each = a 143 por ‘ont promium tthe stock's last trading price of 3.5 ‘ents prior tothe announe ‘ment. Not surprisingly, the hows tiggered a. sharp price rally in the Catal {stlisted ebuntor onco the ‘ading halt was hited. PNE Micron advanced as much fas 114 por cont or four fonts to hit an inte ‘njgat7 cons on healthy vo tumes that day. 4 premium tffring prio (pro-consol- Mlation) was also observed for ‘Kyodo-Allied’s pro- posed #0, ‘Allin all iLook tke the return of RTOS Is here to slay for now as it remains fan attractive mechanism to Seek listed status equity markets today