SINGAPORE - A spanner has been thrown in the works of a proposed privatisation deal involving Frasers & Neave (F&N) and its subsidiary Frasers Property (China) Ltd.

Shareholders of the subsidiary are due to vote on July 30 in a special general meeting to consider the privatisation deal, which will pay them HK$0.28 per share.

But in a twist of events, the independent board committee set up to advise shareholders on the deal, together with the independent financial adviser (IFA) it appointed, have advised shareholders to vote against the privatisation by its parent.

They called the terms "not fair and reasonable" in the scheme document posted on Hong Kong-listed Frasers Property (China)'s website yesterday.

In addition, the board of the company highlighted a new adjusted net asset value (NAV) of HK$0.525 a share in a filing to the Singapore Exchange (SGX) yesterday.

This is much higher than the NAV per share of HK$0.338 mentioned in the original privatisation proposal on May 8.

As a result, the offer price of HK$0.28 is at a "considerably deeper" 46.7 per cent discount to the adjusted NAV, pointed out CIMB Securities, the independent financial adviser to the privatisation deal.

Privatisation precedents have an average discount of 26.2 per cent, said CIMB.

And more recent precedents from January 2007 have an average discount of 17.6 per cent to NAV.

"Considering that the discount to the adjusted NAV per share is the more appropriate benchmark for assessing property companies, we are of the view that the terms of the proposal. . . are not fair and reasonable so far as the independent shareholders are concerned," said CIMB.

"Accordingly, we advise the IBC (independent board committee) to recommend to the independent shareholders to consider voting against the proposal."

The original May 8 proposal noted that the HK$0.28 offer price was 47.4 per cent above the company's last closing price of HK$0.19 per share before the deal was announced.

The offer was also 68.7 per cent over the average closing price for the last 180 days.

It said the HK$0.28 offer was a discount of 17.2 per cent to the audited consolidated net asset value attributable to shareholders per share of HK$0.338 as at Sept 30, 2011.

However, it also cautioned then that the market value of the properties was likely to be different from the accounting value.

The plan is for the company to be taken private by FCL (China) Pte Ltd, an indirect wholly-owned subsidiary of F&N, and Riverbook Group Ltd (RGL), wholly owned by Ascendas Land International Pte Ltd. DBS is the financial adviser to FCL China and RGL.

FCL China will own 76.6 per cent after the deal, and RGL 23.4 per cent.

BT understands that some independent investors disagreed with the accounting valuation used in the original proposal.

The Hong Kong press published several articles against the deal, citing vacant land not reflected on the balance sheet and criticising F&N chairman Lee Hsien Yang.

FCL China and RGL announced in a joint statement on June 18 that the offer price would not be revised in the course of the proposal.

Yesterday, the company announced that after a valuation report prepared by CBRE HK Ltd, its unaudited NAV as at March 31, 2012 will be adjusted from HK$2.4 billion to HK$3.6 billion.

This resulted in the higher NAV and widened the discount to NAV of the privatisation deal to 46.7 per cent.

While CIMB advised shareholders not to vote for the deal, it warned shareholders that if the deal is scuttled, there is no assurance that the current trading price - which shot up to HK$0.27 on May 9 and stayed around there since - will remain at current levels.

The chances of the company receiving another third-party offer are unlikely, given that the joint offerers FCL China and RGL currently own 74 per cent of the company.

And the Hong Kong takeover code allows another offer to be announced only after a year, even by the same offerers, it said.

A letter from FCL China and RGL to shareholders yesterday said as much, arguing that the proposal offers a cash exit opportunity at a premium to market prices, and some comparable listed property peers are trading at higher NAV discounts than the company's privatisation offer.

Under the Hong Kong takeover code, the privatisation will be approved only if at least 75 per cent of disinterested shares are cast for the proposal, and not more than 10 per cent against.

Yesterday, Frasers Property (China) closed unchanged at HK$0.27. Trading volume leapt to 51.6 million shares, up from 1.6 million the day before.

F&N gained 14 cents to $7.30, up 1.96 per cent.

This article was first published in The Business Times.