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Yingde Gases "accidental win" for minorities fans sparks of activism

| HONG KONG, March 24

HONG KONG, March 24 The messy battle to control China's largest producer of industrial gases has turned into a serendipitous victory for minority investors that could encourage more shareholder activism in Asia.

Though far less common than in the United States, open campaigns seeking better returns or a change in business strategy have risen sharply in Asia, with the number of targeted companies rising to 77 in 2016 from 55 the previous year, according to data from research firm Activist Insight.

That is still well short of the 456 cases in the United States, underscoring the room for further growth as investors feel more emboldened and markets in the region expand.

The decision by Yingde Gases Group's shareholders earlier in March to oust five directors ended a four-month battle for control of the $1.6 billion company's board in a clash over how to improve its finances and business. It is expected to speed up a strategic review that could include an outright sale of the company.

The increase in public activist campaigns also highlights how investors including Elliott Management Corp, BlackRock Inc and Hong Kong-based hedge fund Oasis Management are becoming more public as they try to rally other minority shareholders to boost returns from laggard stocks.

"This case with Yingde had the potential of disenfranchising shareholders, but people went and they voted. It only happened because the insiders split and that gave a real voice to minority shareholders here," said Seth Fischer, chief investment officer at Oasis, which holds a 4.5 percent stake in Yingde. "It was a bit of an accidental win."

As Yingde co-founders Sun Zhongguo and Trevor Strutt, who prevailed in the vote, battled with Zhao Xiangti, another co-founder and major shareholder, the company received takeover approaches from asset manager StellarS Capital (Hong Kong) Ltd and U.S. industrial gas maker Air Products and Chemicals Inc worth $1.1 billion and as much as $1.5 billion in cash, respectively. If successful, the Air Products purchase would be the biggest takeover by a U.S. company in China.

The takeover battle took another twist when Hong Kong-based private equity firm PAG agreed to buy the combined 42.1 percent stakes of Zhao, Sun and Strutt for $616 million. The offer's only condition was that PAG and parties acting in concert with the fund hold more than 50 percent of Yingde.

Institutional Shareholder Services (ISS), which advises pension plans and mutual funds, had called in the beginning of March for a fully independent board, as that would give "the most objective assessment of any offers to acquire" Yingde. The call for more independence was also voiced by Oasis.

Speaking to Reuters last week, Strutt and Sun said they believed Zhao had destroyed value for shareholders and were now focusing on trying to secure a higher bid for the company. They said they were also trying to bring in another board member with expertise in the gas sector to help the process go smoothly.

While one UK fund manager described the Yingde case as a "somewhat unique situation, rather than the dawn of a brave new world of activism in Hong Kong," since it depended on a split among the top shareholders, there is nevertheless at least a noticeable whiff of change.

In a region with many family-owned businesses and listed companies with few people holding the vast majority of shares, investors are increasingly asking boards to act in the interest of all shareholders, not just majority owners.

In a rare public campaign last year, ultimately unsuccessful, BlackRock, the world's largest asset manager, called on the board of Hong Kong-listed G-Resources Group Ltd to "honour its obligations to all shareholders".

While the number of companies targeted by activist investors was unchanged at 14 in 2016 from 2015 in Hong Kong, it rose to 15 from nine in Japan and to 11 from eight in China, while also rising in South Korea, Singapore and Malaysia, according to Activist Insight.

Asia has seen vast improvement in corporate governance over the past two years as regulators and securities exchanges tighten rules to boost company performance, raise investor confidence and guard their reputations.

Markets including Hong Kong, Japan, Singapore, South Korea, Taiwan and Thailand have been getting tough on rogue firms and introduced stewardship codes to encourage engagement between companies and investors.

Hong Kong and Singapore, two of the region's largest financial centres, have tightened listing and takeover requirements, and stepped up enforcement after instances of erratic price movements sparked fear of manipulation. (Additional reporting by Michelle Price in Hong Kong and Anshuman Daga in Singapore; Editing by Will Waterman)

我们的标准: 汤森路透“信任原则

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