Is GSH Corporation’s Sale of Its Core Business Fair to Its Shareholders?

The transformation of GSH Corporation (SGX: J16) seems to be almost complete.

In 2012, GSH was still known as JEL Corporation – a company with a core trading and distribution business that deals with consumer goods – before local billionaire Sam Goi came into the picture. That year, Goi launched a reverse takeover of the company and changed its name to GSH Corporation. With that came a new business focus for the company: Property development in China.

The company has since embarked on deals in the property sector with the latest being its purchase of Equity Plaza in Singapore and a piece of land in Kuala Lumpur, Malaysia.

Sale of its core business

As part of its restructuring, GSH announced last week that it will sell its trading and distribution business (which as mentioned earlier, used to be the company’s core business) to Serial System (SGX: S69). The latter is also a company related to Goi (he’s currently GSH’s Chairman).

Since GSH’s management has already indicated that the company will be focusing on the property sector after the reverse takeover, this disposal should not come as a surprise for shareholders.

Furthermore, with GSH’s entry into the property sector, the trading and distribution business now only makes up “a relatively small portion of [GSH’s] total assets.” For more specifics, the business to be sold has a net asset value of US$11 million, which is just 3.1% of GSH’s total net asset value of US$355.5 million.

So, the trading and distribution business is simply no longer of much significance to GSH as a whole. Therefore, shareholders should not worry too much about this sale.

There’s likely not much cause for worry as well even though GSH is selling the trading and distribution business to a company related to its Chairman instead of to an independent party. That’s because the loss making business (it clocked up a net loss of US$70,000 for the three months ended 31 March 2014) would be sold at a premium to its net asset value; the business would be sold for around US$13.4 million. That should be a source of some comfort for GSH’s minority shareholders.

Foolish Summary

With the sale of what was once its core business, GSH can now focus on its growth strategy in the property sector instead of worrying about turning around a dying business. As GSH’s restructuring of its business enters its final lap, it can now dedicate even more attention and resources toward being a real estate outfit.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim do not own any of the companies mentioned.