Global Investment Limited (Attempt To Unlock Intrinsic Discounted Value)- Wiping off Accumulated Losses from the Global Financial Crisis.

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Global Investment Limited (“GIL”) has announced on 28 September 2018 that it intends to hold a Special General Meeting (“SGM”) to pursue a few ordinary resolutions. Most of the resolutions proposed are due to technicality issue when GIL transfer the domiciliation of the Company from Bermuda back to Singapore. Hence by virtue of the Singapore Companies Act and SGX Listing requirement, it required shareholders to give a new mandate such as on existing share buyback and Scrip Dividend Scheme that are already in existence under the law of Bermuda. I will give a quick highlight of the 2 ordinary resolutions that may have a greater impact on the financial and share price.

Extract of Proposed Resolutions at Special General Meeting

The first ordinary resolution is basically a capital reduction exercise proposed by GIL. There is actually no financial impact from this resolution being pursued. But I reckon that it is an attempt to remove the stigma of the huge losses incurred by the previous Asset Manager, Babcock & Brown. The stigma has long been associated with a huge discount off the book value of GIL.  

(1) Background and rationale of the 1st proposed resolution for capital reduction

GIL was incorporated in 2006 and run by Babcock & Brown from 2006 to 2009. It incurred astounding losses of S$236Mil up to 31 December 2009. The losses arose mainly from the impairment of the underlying investments made in 2008 and 2009 during the Global Financial Crisis.

ST Asset Management Ltd took over as the manager of the Company on 25 November 2009 followed by Singapore Consortium Investment Limited from 29 April 2016 till present. It is worthwhile to note that under the current management team from 1 January 2010 to 30 June 2018, GIL has generated a total profit of S$193Mil out of which S$127Mil has been distributed out as dividends.

In addition, there were also legacy issue with regard to the significant cumulative forex losses from the USD functional currency of S$66Milprior to the effective change from USD to SGD as functional currency from 1 January 2012.

(1.1)Structure of the proposed 1st resolution for capital reduction

Extract of Statement of Financial Position as at 31 Dec 2017

This exercise undertaken is to better reflect the underlying assets of GIL’s balance sheet. This will remove the “Accumulated losses” that is so prominently being displayed as negative on its balance sheet. By flushing the losses against share capital, my guess is that the directors are trying to dis-associate GIL from its previous management during the Global Financial Crisis. This seems like a re-branding & marketing effort for investors to re-assess the Company based on the solid track record of the new management. Will have to give the management credit for this valiant attempt to try to close the gap between the net realizable values against current undervaluation by the market on SGX.

(2) Proposed re-domiciliation of the Company from Bermuda to the Republic of Singapore

GIL intends to seek shareholders’ approval for the transfer of the domicile of the Company from Bermuda to Singapore by way of a discontinuance out of Bermuda and continuation and registration in Singapore. The 2 main purposes are to (i) align GIL’s country of registration with its country of listing and where its main operations and business are situated (which is actually Singapore) and (ii) to enhance administrative and operational efficiency when the Company contemplates any corporate transactions or undertakes any fund raising exercise whereby GIL will need to ensure compliance with both Singapore listing rules, regulations and laws as well as Bermuda laws and regulations.

(2.1)Cost savings from the re-domiciliation of GIL from Bermuda to Singapore

Currently, for any corporate transactions and exercise undertaken by the Company would need to comply with both the rules and regulations of Singapore and Bermuda. There is thus a duplication of legal expenses for compliance. By switching the re-domiciliation of the Company from Bermuda to Singapore, there will be savings in the costly legal fees for compliance purpose. Hence overall, this initiative is an excellent move as it would result in faster execution and lower costs incurred by GIL.

Final thoughts on the Special General Meeting

I think that the management of GIL are awesome and pro-active in terms of doing their best for the Company and the assets under management. It is great to see that the management are making efforts to lessen the magnitude of the huge discount of the market value relative to the intrinsic value. I am keeping my fingers crossed that with the proposed resolution, there will be some short term improvement in the closing of the current gap. However, I am not sure how effective this move will be given that the undervaluation issue has been there for many years.

If this still does not work out, the management should probably up the ante and get some big investors to come in and buy out GIL closer to the fair value. Then inject new assets or business along with existing ones into a new Company and then do an IPO in future. This seems to be the only quick way to unlock the dormant value hidden in GIL.

Note: Please also refer to the following links for the previous reviews on GIL

(i)”Global Investment Limited- Financial review. Is it really a “HiddenGem”?”

(ii)“Super high yield SGX Dividend Stock-Global Investments Limited. STAR buy?”
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