{"id":324,"date":"2021-02-05T09:53:30","date_gmt":"2021-02-05T09:53:30","guid":{"rendered":"http:\/\/s2invest.com\/?p=324"},"modified":"2024-07-03T06:57:11","modified_gmt":"2024-07-03T06:57:11","slug":"court-case-offers-insights-for-valuation-proceedings","status":"publish","type":"post","link":"https:\/\/s2invest.com\/index.php\/2021\/02\/05\/court-case-offers-insights-for-valuation-proceedings\/","title":{"rendered":"Court case offers insights for valuation proceedings"},"content":{"rendered":"\n

In a court case involving two chemical manufacturers in their ownership of a shared venture, the judgment\u2019s preference for certain valuation methods sets a precedent for future valuation experts to follow. <\/em>
<\/strong><\/p>\n\n\n\n

Background                                                       <\/strong><\/p>\n\n\n\n

In DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries and others and another suit<\/em> [2018] 5 SLR 1 (the \u201cMain Judgment\u201d), the SICC ruled that Senda International Capital Ltd (\u201cSenda\u201d) purchase Kiri Industries LTD\u2019s (\u201cKiri\u201d) shares in their shared venture, DyStar Global Holdings (Singapore) Pte Ltd. The SICC held that Senda has engaged in instances of oppressive conduct against Kiri. Kiri\u2019s shares were valued as of 3 July 2018 (\u201cthe valuation date\u201d). <\/p>\n\n\n\n

In Kiri Industries Ltd v Senda International Capital Ltd and another<\/em> [2019] 4 SLR 1 (the \u201c12 March 2019 Judgment\u201d), the court ruled that no minority discount for lack of control (\u201cDLOC\u201d) should be applied to the valuation of Kiri\u2019s shareholding of DyStar. <\/p>\n\n\n\n

The most recent proceeding involved the valuation of\nDyStar and Kiri\u2019s shares in DyStar (\u201cthe valuation proceedings\u201d).  Senda and Kiri engaged separate valuation\nexperts to assist in the valuation process. <\/p>\n\n\n\n

The experts utilized different approaches to valuation and arrived at different valuations. This divergence was a result of not only the different methodology applied, but also the significance they appointed to particular events. These include a category of occurrences known in the judicial proceedings as \u201cFive Risk Events, and one-off events and transactions affecting DyStar\u2019s valuation.<\/p>\n\n\n\n

Judgment and learning points<\/strong><\/p>\n\n\n\n

The methodology used and valuation proposed by the\nexpert appointed by Kiri was preferred to Senda\u2019s. Reviewing their merits\nproves useful for other valuation experts. \n<\/p>\n\n\n\n

The valuation date is very important<\/em><\/p>\n\n\n\n

Only events that occurred before the valuation date\nand, more interestingly, events occurring after the valuation date that were\nforeseeable as of the valuation date were to be taken in the valuation proceedings.\nFor instance, an insurance pay-out in May and June 2019 had to be incorporated\ninto DyStar\u2019s valuation as they were foreseeable as at the valuation date. <\/p>\n\n\n\n

Interestingly, the closure of a DyStar plant in\nAnkleshwar, India due to a notice by the state pollution control board before\nthe valuation date did not affect the valuation. This is because it was judged\nthat there was a subsequent notice issued after the valuation date. Hence, as\nthe entirety of notices was not foreseeable before the valuation date, the\nclosure was not included. <\/p>\n\n\n\n

Reliance on market data is preferable<\/em><\/p>\n\n\n\n

Kiri\u2019s valuation experts relied on market data in\nthe form of independent market and broker reports comparable to similar\ncompanies in terms of operation, revenue and market share.  This approach was praised by the judges as\nSenda failed to disclose some of DyStar\u2019s key financial documents for the\nrelevant years.  <\/p>\n\n\n\n

They also relied on data from credible, peer-reviewed, and reputable sources, some of which were also used by Senda. <\/p>\n\n\n\n

In addition to the valuation produced from the\nmarket approach, the expert also presented an alternative figure using the\nDiscounted Cash Flow (DCF) method. Then, these values were aggregated into a\nsingle final valuation. This approach was praised for its commitment to\naccuracy.<\/p>\n\n\n\n

Discounts and risk premium should be\nconsidered<\/em><\/p>\n\n\n\n

A discount for the lack of marketability (DLOM) was applied to Kiri\u2019s minority share as a reflection of the lack of marketability. This was the case as the company was privately-owned and not publicly-listed. <\/p>\n\n\n\n

Also, a country risk premium was imposed on DyStar as it did business in multiple jurisdictions. This reflects the country-specific risks that come with such a vast multi-state operation. <\/p>\n\n\n\n

All in all, the judgment sided Kiri\u2019s valuation\nexpert\u2019s method and the sum of US$1,636m, but ruled that this required some\nminor technical calculations<\/p>\n\n\n\n

About Gifted\u00a0Group<\/strong><\/p>\n\n\n\n

The insights provided in this case have been a feature of Gifted Group\u2019s valuation process. <\/p>\n\n\n\n

Gifted Group is a corporate financial advisory firm that provides strategy advice, transaction structuring, and valuation services. <\/p>\n\n\n\n

It has acted as an Expert Valuation Witness to several seminal cases including  UTJ v UTK<\/em> [2019] SGHCF 6, where it produced credible, fair and comprehensive assessments of the matters dealt with in its valuation reports. Gifted Group provided an aggregated value from an amalgamation of two different methods for the asset valuation process. These valuation reports allowed the Court to arrive at a more just and equitable means of dividing matrimonial assets between the Parties. <\/p>\n\n\n\n

Other cases include: <\/p>\n\n\n\n