Value Investing

Rise of Shareholder Activism (HUPSteel AGM)

Last Wednesday, I decided to attend HUPSteel Limited’s AGM. The main reason for attending the AGM was that I felt the new resolutions that the Board of Directors wanted to pass was unfair to minority shareholders. After the AGM and EGM, my opinion is that in terms of matters of Corporate Governance, the Board of Directors have much to improve on.

New Resolutions:

  1. Ordinary Resolution 1: Proposed Adoption of the HUPSteel Employee Share Option Scheme 2015.
  2. Ordinary Resolution 2: Discount of up to 15% to the market price of a share under the HUPSteel ESOS 2015.
  3. Ordinary Resolution 3: Proposed participation by Lim Boh Chuan, a controlling shareholder of the company, in the HUPSteel ESOS 2015.
  4. Ordinary Resolution 4: Proposed participation by Lim Kim Thor, a controlling shareholder of the company, in the HUPSteel ESOS 2015.
  5. Ordinary Resolution 5: Proposed participation by Lim Kim San, Joe, an associate of a controlling shareholder of the company, in the HUPSteel ESOS 2015.
  6. Ordinary Resolution 6: Proposed participation by Lim Boh Wee, an associate of a controlling shareholder of the company, in the HUPSteel ESOS 2015.
  7. Ordinary Resolution 7: Proposed participation by Lim Beo Peng, an executive director of the company, in the HUPSteel ESOS 2015.

While we could stomach the passing of the share options scheme, however, a discount of up to 15% to the market price? How is this even logical? As many of us value investors would know, HUPSteel is a deeply undervalued company that is worth more dead than alive. At current market price, it offers investors a sustainable margin of safety. Yet, the management is still trying to pass a resolution that allows them to issue options at a 15% discount to market price.

. . .this scheme will be valid for ten years. It is basically putting in place for the future. . .the directors feel that we should have in place a scheme so that we can reward present as well as future employees. . .we need to find other ways of retaining them and rewarding them and not just by way of cash but also by way of shares and in there, there is an element of retention. . .

Chairman Ong Kian Min

This is an excerpt from the EGM regarding the reason for the ESOS – a question raised by the public. I would agree that the scheme is a good way for rewarding employees and retaining talent. However, a discount of 15% coupled with resolutions 3 – 7, I have huge doubts on their motive of talent retention.

I am just wondering whether the Board had thought through this carefully because share options is nowadays deemed passé, considered not preferred to share performance scheme. I think you would have read Warren Buffett arguments, which are very logical. Basically, share options are very dilutive for existing shareholders. Secondly, there is the tax angle for the company to consider when you issue share options…Share performance is more straightforward, you have a share mandate scheme to for share purchases. So you buy those shares, keep in the treasury and allocate to deserving employees as and when they deserve those shares. The objective of retention of employees is also fulfilled by share performance scheme.

Mano Sabnani

As pointed out by Mano, a share options scheme is something of the past and that there are better methods in rewarding employees without it being destructive to existing shareholders. SGX ruling prevents interested parties from voting, preventing the controlling Lim owners from voting in this resolution. Hence, we did not see the passing of Resolution 1.


Though HUPSteel is a listed company, it is too a family owned company. Naturally, it would have a mix of West and East practices and this is something I am able to still accept. However, offering options at a discount price when current valuations are already so undervalued is going overboard. While shareholder activism is not yet prevalent in Singapore, it is something that we as investors should aim towards. This is to increase the level of corporate governance within the Singapore market and to prevent the oppression of minority shareholders. That said, being shareholders of HUPSteel, I may be biased when writing this post. Hence, I have attached the voice recording and would like to invite the public to judge for themselves. I would apologise that the voice clip started mid-way as the thought of recording the entire AGM & EGM did not occur to me initially.