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A controversial HK$5.88 billion share buy-back offer by the Guoco Group was approved on the narrowest of margins yesterday despite a rare display of defiance by minority shareholders.

Independent shareholders voted by 50.51 per cent to 49.49 per cent to approve the offer, which had been the subject of an acrimonious board-room split.

It clears the Quek family-controlled company to buy back up to 107 million shares at HK$50 to HK$55 each in a tender process.

It will distribute some of the HK$32.27 billion proceeds from the April sale of Guoco's majority stake in Dao Heng Bank to Singapore's DBS Bank. It will also tighten Quek family control over the company.

Shareholders, however, rejected a proposed 'creeper authorisation' that would have allowed Guoco to buy back up to 2 per cent more of its shares in the next year. The majority was again slim, with 51.13 per cent voting against the proposal.

The Kuwait Investment Office (KIO), Guoco's second-largest shareholder with 17 per cent, surprised some by abstaining from voting. With two seats on the Guoco board, it had criticised the buy-back offer and in turn came under attack by the board majority.

Only 118.43 million out of about 279 million shares, or 42.45 per cent of the eligible votes, were cast. Chairman Quek Leng-chan and related parties, with 34.68 per cent of Guoco, were excluded from voting.

In an October 17 letter, the KIO had said the buy-back was 'not the best means of returning value to shareholders' and slated the original offer range of HK$46 to HK$51 as too low.

Fund managers also publicly criticised the offer. According to the shareholders' circular, Guoco had a net asset value of HK$75.55 a share at June 30, most of which was in cash as a result of selling its 71.3 per cent stake in Dao Heng. Guoco's remaining operations include property, broking, insurance and fund management.

'KIO said one thing, but did another,' said a fund manager. 'They are allowed to do so but there could be more to it . . . We do not know the whole picture.'

Guoco executive director James Eng did not know why KIO abstained from voting, but offered a possible explanation.

'KIO was publicly saying they objected to the old price range but they did not come out to say anything about the new price range,' he said.

On October 24 Guoco raised its offer price. Under the offer, Guoco proposes buying back up to 86 million shares with an option to increase that to 107 million. If the offer is fully subscribed, the company will pay out between HK$4.3 billion and HK$5.88 billion.

Shareholders who tender shares must nominate a price within the range or the strike price which will be the lowest price enabling the company to buy back the maximum number of shares.

If the offer is fully subscribed the Malaysian-based Quek family's stake in Guoco will rise to between 43.43 per cent and 46.28 per cent depending on whether the over-allocation option is exercised.

Mr Eng said different shareholders had different investment philosophies and horizons and yesterday's decision gave them the option to cash in.

Lloyd George Management (HK) fund manager Zaheer Sitabkhan said his firm voted against the buy-back but would consider tendering shares.

Calling the offer too low, Mr Sitabkhan said he hoped Guoco would pay high dividends.

But Mr Eng said Guoco had no plan to change its dividend policy following the success of the buy-back plan.



KIO silent as shareholder dissent falls short in Guoco buy-back vote