Magna Prima’s RCPS to LTAT viewed by some as an overly favourable move

KUALA LUMPUR: Magna Prima Bhd raised eyebrows on Monday when it proposed the issuance of 40 million new redeemable convertible preference shares (RCPS) in Magna Prima to Lembaga Tabung Angkatan Tentera (LTAT), in which some have regarded as overly favourable terms.

The RCPS — which is to fund Magna Prima’s property projects, including its maiden overseas development, the Istana project in Australia — carries the right to receive a fixed preferential dividend at the rate of 16% per year. It has an issue price of RM1 each.

This compares with a one sen dividend paid to the company’s ordinary shareholders in the financial year ended Dec 31, 2013 (FY13).

Its chief executive officer Datuk Rahadian Mahmud Mohammad Khalil said the exercise is part of a longer-term strategy to court institutional investors for its future property development projects.

“This is more of a strategic move to court institutional investors like LTAT as we have plans to make a big push into other jobs, after the completion of the Istana project,” he told The Edge Financial Daily yesterday.

The Edge weekly reported in June that the property developer was seeking a buyer for its prized parcel in Kuala Lumpur’s Golden Triangle — the former site of SRJK (C) Lai Meng.

The company has won the approval for an integrated project with a gross development value of RM1.8 billion on the 2.62 acres (1.1ha) land in Jalan Ampang, which could result in Magna Prima doubling the amount it paid for the land.

Rahadian said Magna Prima has pretty much been “on its own” and foresees itself growing bigger and needing the support of institutional investors.

“It’s a way of enticing and fostering a good working relationship with LTAT — 16% may sound expensive, but this is a form of investment for the company. We have the longer term in mind,” said Rahadian.

A full conversion of the RCPS by LTAT into new Magna Prima shares will see LTAT becoming a substantial shareholder of Magna Prima, with an 11.23% equity stake. The Istana project is a single tower residential apartment comprising 320 units of 1-, 2- and 3-bedroom apartments and 2-storey penthouses, with retail elements, located in Melbourne, Australia.

Funds raised from the RCPS will allow Magna Prima to complete the Istana project at a relatively lower finance cost of 16% per annum — the dividend payable on the RCPS to LTAT. This has raised the question as to why the mezzanine loan was taken up at what seemed to be a relatively high interest rate of 25% in the first place.

“That 25% is the standard mezzanine loan rate in Australia. At that time, we needed to cover our working capital and short-term cash flow funding issues, to fill up the gaps due to our cash inflow/outflow mismatch timing in the course of our ordinary business,” Rahadian explained.

He pointed out that there were no inflows from the project in Australia at that time as it was still in the development stage. “We paid 25% because we could obtain the mezzanine loan on short notice for our cash flow needs. In fact, the loan was approved within a few days, and [we were] able to utilise it immediately,” he said.

This article first appeared in The Edge Financial Daily, on August 15, 2014.


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