17-05-2020, 03:00 PM
(17-05-2020, 09:36 AM)karlmarx Wrote: [ -> ]If SIA decides to redeem the MCBs when the prevailing share price is much lower than the equivalent conversion price, this disadvantages the minority and advantages the MCB holders (also the majority shareholder Temasek here).(16-05-2020, 09:23 PM)Squirrel Wrote: [ -> ]The option to redeem lies with the issuer and the mandatory conversion only happens at maturity (so only way to prevent that is for SIA to redeem prior). Your post seems to suggest that Temasek will ultimately be the one deciding what is going to happen and not SIA. Is that due to the majority shareholding they hold? Isn’t the company supposed to do what’s best for shareholders and not pander to a portion of the investors? This is a rather unfair thought process if true and disadvantages OPMI. There is a corporate governance issue at hand as well if that’s the case.
How does the redemption or conversion of MCBs advantage SIA controlling shareholders?
How does the redemption or conversion of MCBs disadvantage SIA minority shareholders?
The MCBs and share issue ensure that SIA will be able to remain a going concern. So at least minority shareholders -- both before and after the corporate action -- are assured that their capital will not go down to zero, although it may lose much of its value.
The trade-off for this security is that minority shareholders will face either ownership dilution or no/low dividends; the MCBs are a loan that needs to be repaid in either of the two ways. There is no free lunch.
So it is not apparent to me how the MCB (or share issue) corporate actions may materially benefit one group of shareholders more than -- or at the expense of -- the other. I will be happy to consider other views which may convince me otherwise.
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I don't profess to actually know how SIA or Temasek makes their decisions. But it should be clear that they are not uninterested parties who are making arms-length transactions. So there is probably more consensus than conflicting views/agendas in the boardrooms; they are more likely to see themselves to be on the same team than otherwise. After all, are these executives not cut from the same cloth?
Lengthy paragraphs on corporate governance policies and principles are an ideal, and although there is an effort to strive in the 'correct' direction, what should be does not always reflect -- or even approximate -- what is. And this applies to every other institution. Religious leaders are not supposed to sexually abuse their members, but they do. Political leaders are not supposed to steal national resources, but they do. Public company executives are not supposed to be able to walk away when they misuse company resources, but they do. And so on.
Anyway, this point is probably moot. Because, as mentioned, it is not apparent to me how the controlling shareholders are in some ways taking advantage of minority shareholders, whatever the decision (whether redeemed or converted) is taken for the MCBs.
If SIA decides to not redeem even though business has turned around and prevailing share price is much higher than the conversion price, this advantages the MCB holders and disadvantages the minority holders.
That much is economically the most obvious thing that can happen. If the decision to redeem or not to implicitly lies with Temasek and not SIA as you said, then there is a big problem here.