KUALA LUMPUR: Tan Sri Danny Tan is creating a new property flagship in Singapore-listed Albedo Ltd through an asset injection exercise valued at S$774.17 million (RM1.96 billion), a deal that is larger than the current market capitalisation of his Malaysia-listed Tropicana Corp Bhd of RM1.71 billion.
As the tycoon will control two property flagships with exposure to Johor property market, Albedo last week told the Singapore Exchange (SGX) that it plans to enter into a project management agreement with Tropicana, for the latter to manage the development of its projects in Iskandar Malaysia.
This is to avert potential conflicts of interest that could arise between two companies.
“This arrangement ensures that Tropicana will also benefit from the projects under Albedo, without having to absorb its assets,” said a corporate finance adviser.
He said Tropicana’s bloated balance sheet, with total assets amounting to almost RM5 billion, as well as its high gearing won’t allow it to accommodate further asset injection from Tan, a reason for the tycoon to seek a separate listing vehicle for the family’s privately owned landbank in Johor. It is worth noting that Tan pumped in RM1.1 billion worth of family-owned assets into Tropicana late last year.
The tycoon serves as the vice-chairman of Tropicana and holds a direct and indirect interest of 38.7%, while his son Datuk Dickson Tan is managing director and daughter, Diana Tan, a non-executive director.
In an announcement to the SGX last Friday, Albedo said it would be buying Infinite Rewards Inc’s wholly owned unit, Reflections Oasis Inc, with 662.7 acres (269.8ha) in Gelang Patah, for S$774.17 million (about RM68 per sq ft). Tan and family members own 100% of Infinite Rewards.
Albedo will pay for the acquisition by issuing to Tan and family 34.55 billion new shares representing 95% of the enlarged issued capital of the company at around 2.24 Singapore cents per share.
The deal could become even bigger as Tan and Albedo are still negotiating for two more parcels of land measuring about 233.04 acres in Gelang Patah to be included in the deal, in addition to the initial seven parcels measuring 662.7 acres in the same vicinity for a consideration of S$774.17 million.
Based on valuations by Knight Frank Malaysia Sdn Bhd, the aggregate market value of the seven parcels is RM2.71 billion as at Aug 30. The land parcels, which are accessible from Johor Baru via many roads and the Tuas Second Link Expressway, are earmarked for conversion into commercial, industrial and/or residential usage.
“Planning permission for the development of the largest of the seven land parcels of about 295.87 acres, for commercial and industrial use is to be obtained prior to completion of the deal. The planning permits of the other six remaining parcels of land are envisaged to be obtained post-completion,” said Albedo in the filing to SGX.
It said Infinite Rewards has agreed that 23.28 billion consideration shares or about 67% of the total number of new shares to be issued, be placed with an independent third party as an escrow agent.
In the event that any planning permission or development order is not obtained for the land, Albedo said it shall obtain a valuation report and carry out a capital reduction exercise or such other corporate action to cancel such number of escrow shares which represent the difference in the value of the parcels.
Explaining the rationale for the deal, Albedo, currently a steel and raw materials trader, said it expected the group’s existing core trading businesses to remain challenging.
“The board also believes that the proposed acquisition will provide an opportunity for the company to participate in the growth of Iskandar Malaysia, thus enhancing the market profile of the company,” it said.
“The acquisition is also expected to increase the market capitalisation of the company significantly and raise the profile of the company and generate investors’ interest in the company,” it added.
For the first half of 2013 financial year ended June 30 (1HFY13), Albedo posted a net loss of S$205,000, a slight improvement from the loss of S$277,000 made in 1HFY12. For the full FY12, Albedo’s losses stood at S$1.37 million. Its market capitalisation is S$103 million.
In order for Albedo to focus on the development and management of properties in Malaysia, it will also sell its current operating business to Albedo’s CEO Tai Kok Chuan or his nominees. Tai currently owns 5.9% of Albedo.
Albedo and Infinite Rewards have also agreed that the former may carry out a capital reduction exercise or similar corporate action to distribute cash or cash equivalent available in the company’s account to shareholders prior to completion of the transaction.
This article first appeared in The Edge Financial Daily, on September 23, 2013.
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