Published October 22, 2008

Eng Wah shareholders have reason to cheer

By VEN SREENIVASAN

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IT would be a huge under-statement to describe the current market scenario as depressing. With some $300 billion in market value wiped out, most investors have little to cheer about.

But there are exceptions to every rule, and in this case, it could be the shareholders of listed cinema operator Eng Wah Organization.

In less than three weeks, Eng Wah's minority shareholders will vote on the reverse takeover of the listed entity by Transcutaneous Technologies Inc (Transcu), a Japanese biotech firm whose board members include luminaries like former US secretary of state Alexander Haig, former deputy secretary of state Richard Armitage and top World Health Organisation research scientist Steven Reed.

Under the RTO deal, Eng Wah must clear all its assets and liabilities and then distribute the resultant cash to shareholders.

Eng Wah's controlling shareholders - led by founder Goh Eng Wah and his daughter Min Yen - who control 70 per cent of the company, have already bought four of the group's properties for almost $99.5 million.

Special dividend

Earlier, Eng Wah sold its Mandarin Theatre property at Kallang for $13 million. Part of this was used for a $27.5 million capital reduction exercise. In fact, shareholders will receive a special dividend of 18 cents per Eng Wah shares today.

Then there is also $2.75 million from the sale of its Crazy Horse cabaret premises. So there is still almost $103 million to be distributed to shareholders. This works out to about 68 cents per share.

Eng Wah gained two cents to close at 66 cents on the big board yesterday - a remarkable show of resilience amid the raging storm battering the stockmarket.

Under the share swap agreement, Transcu will retain $10 million in cash.

The shareholders of the listed cinema operator will also get one pre-placement Transcu share per Eng Wah share. The remaining Transcu shares will be privately placed out later at 38 cents per share.

This means, in total, Eng Wah shareholders are looking at the prospect of another $1.06 per share, on top of the 18 cents today.

With all the paperwork and preliminaries completed, come November 7, minority shareholders of the mainboard listed company will vote on whether to approve the sale of the properties, the sale of the business and the reverse takeover of Transcu.

Will they give the deal their nod? The smart money reckons they will.

These are not exactly the best of times for anyone who is invested in the equity market. With the US having slid into a recession and Wall Street some 40 per cent down from its peaks, it would be a stretch to spin an optimistic yarn for stock investors anywhere in the world.

Profitable exit

As for Eng Wah shareholders, most will probably be acutely aware of the fact that for the longest time, this stock has been one of the most illiquid and inactive counters on the local bourse, stuck largely in the 25-35 cents band. The failure of its Crazy Horse franchise and the unexciting cinema business has not done much to enhance Eng Wah's attraction as an investment prospect.

Still, news of the RTO has injected new life into the stock since late last year. And now, the RTO gives long-suffering minorities a very profitable exit from a lossmaking business and an entry into a potentially exciting biotech business with valuable patents and products.

As one market insider put it yesterday, it's a good switch at minimal cost.

In an ideal world, the vote should be just a formality. But unfortunately, this is no ideal world.

There are some shareholders who have been grumbling that the Gohs snatched Eng Wah's properties at bargain basement prices. That was almost three months ago. Obviously some of these shareholders have not been following the scale of the current crisis' impact on asset prices over the past three months.

Perhaps they should.