Retail Holdings sells majority stake in Singer Sri Lanka

Retail Holdings announced today that they have sold 61.7% of their stake in Singer Sri Lanka for a total consideration of $69.0 million. Because the stock was owned through Sewko Holdings in which the company has a 54.1% stake the consideration attributable to Retail Holdings shareholders will be $37.3 million. This is pretty significant news since Singer Sri Lanka was one of the last remaining big position besides Singer Bangladesh. According to the press release Retail Holdings hasn’t yet determined what the cash will be used for, but based on their history of paying out (large) dividends another one of those is a safe bet. With 4.65 million shares outstanding the $37.3 million payment would enable a dividend of a little more than $8/share, in addition to the $1 dividend that already has been announced for November.

For some reason the company didn’t sell their whole stake in Singer Sri Lanka, but they are keeping a 9.5% stake with the option to sell it to the acquiring party within 12 to 15 months. I have no idea why they have structured the transaction in such a way, but my guess is that it has to do with taxes or other rules that make disposing of the whole stake in one go less attractive. Following the transaction the acquiring party is obligated to launch a tender offer for all shares so presumably they want to acquire everything, while Retail Holdings wants to exit. No reason to think that the remaining position won’t be sold in the time frame of the option.

While Retail Holdings is up a bit based on this news I think the stock is still cheap. It is currently trading at a discount of 25% to underlying asset value, which is not that huge, but if you take into account that shareholders will most likely receive $9/share in dividends the discount on the remaining holdings rises to 37%.

Disclosure

Author is long Retail Holdings

8 thoughts on “Retail Holdings sells majority stake in Singer Sri Lanka

  1. Sagar

    $69M does not take into account the taxes and expenses so they estimate the distribution attributable to REHO would be 38.5M * 54.1% stake. Am I understanding this correctly?

    Reply
  2. Austin

    Thanks for the idea. I think it’s a good one.

    One question: Why does Retail Holdings continue to pay SVP the royalty on the Singer trademark when SVP has defaulted on the ~$32 million owed to Retail?

    Reply
  3. Austin

    Thanks for the quick response. I am probably going to contact the company to try and get an answer. If I get one I’ll post it here.

    Reply
  4. Jon

    Hi,

    What is your view on the Bangladesh Singer non-remittance shares? Is this effectively trapped capital or can they be liquidated with 100% of the value returned in cash to foreign investors?

    Rgds

    Reply
    1. Alpha Vulture Post author

      I’m sure those shares have some value, but most likely they will need to be sold at a discount. But not familiar with the specifics of the rules in Bangladesh to say anything intelligent about it.

      Reply
  5. Dan P

    I’d like to add a few thoughts to the above comments and commentary as I have held this stock for +10 years never selling and I am waiting to cash out with the liquidation of the company in 2019.
    1. The reason RHDGF keeps sending the royalty to SVP was the sweetheart deal where RHDGF sold the SVP notes for $1. I am sure although the company has not release any comments that this deal was done so RHDGF can continue receiving the royalty and management fees from the operating companies. When the company liquidates there is no more revenue attracting royalty to SVP but rather royalty from the operating companies which means that the royalty to SVP becomes approximately 1% of the royalties received by RHDGF. Remember this royalty accumulates from the revenue of license and Singer operating companies such as Thailand, Malaysia, Australia, Bangladesh, India, and Pakistan. I estimate in the coming year this royalty could total $7-$8 million.
    2. I believe RHDGF is negotiating a Bangladesh deal similar to the Sri Lanka deal to one major investor. In my opinion that would be an influential person in the country that might negotiate a better deal. I estimate RHDGF would pay a 25% exit tax on the sale of the restricted shares.
    3. Outside of the value of the operating companies I believe there is additional assets in cash at RHDGF, Sewko, and operating companies. I estimate $4/share net to RHDGF shareholders to be paid between 11/2018 and 9/2019. In addition the new refrigerator manufacturing plant in Bangladesh has just become a investment sub and became profitable in 2018. I estimate an IPO in late 2019 adding additional value to the stock.

    Yes, you could say I am very optimistic regarding this stock but it has not let me down over a +10 year span.

    Reply

Leave a Reply to Austin Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.