PETALING JAYA: Paramount Corp Bhd will tap into the capital markets via the issuance of perpetual bonds and sukuk ijarah worth RM550mil to fund the expansion of its property and education arms.
The planned non-rated and non-tradable perpetual bonds, worth RM200mil, will be the second issuance of its kind in the country. The first time perpetual bonds or sukuk, which have no maturity date and are treatable as equity, was issued was in mid-2012 when Malaysia Airlines issued RM1bil of perpetual sukuk as part of a RM2.5bil debt-raising programme to fund the expansion of its fleet.
Paramount's bond programme was arranged by Hong Leong Investment Bank Bhd, OCBC Bank Bhd and RHB Investment Bank Bhd.
Paramount group chief executive officer Chan Say Yeong told StarBiz recently that the company was readying itself for land acquisition and to expand its education business by “shoring up capital” via the perpetual bond and sukuk offerings.
As at Sept 30, 2012, the company's debt stood at RM225mil, equity base at RM687mil and cash at RM139mil. Gross gearing stood at 0.3 times and net gearing at 0.1 times.
Chan said at a signing ceremony with the banks for the bond and sukuk programmes that the additional funds would be to build up the company's war chest. “There is a lot of potential to grow our business,” he pointed out.
Based on a gross gearing of 0.3 times, the company can raise approximately RM300mil and on 0.5 times, approximately RM500mil can be raised.
The company has lined up several property launches for the first-half of this year, including serviced apartments in Glenmarie, Shah Alam and landed strata-titled units in Cyberjaya.
Paramount remains the largest developer in Sungai Petani, where it developed the 493-acre freehold Bandar Laguna Merbok and recently launched the first phase of the 520-acre freehold Bukit Banyan township.
“Our focus for the property arm will continue to be the north (Kedah and Penang), the Klang Valley and Johor,” Chan said, adding that the 15-year tenure RM350mil sukuk ijarah, to be raised in two tranches, would fund the development of the 10-acre KDU University College, part of the recently launched 21-acre freehold Utropolis mixed development project in Glenmarie.
Hong Leong Bank Bhd, OCBC Al-Amin Bank Bhd and RHB Islamic Bank Bhd have pledged to take up the first tranche of RM220mil to fund the campus' first phase, estimated to cost RM320mil.
The balance of the sukuk will be used to finance the second phase, estimated at RM180mil.
Chan said the move to tap the capital markets and especially the sukuk segment was part of the company's plan to diversify its sources of funding.
“This is the first time the company will be tapping into the Islamic debt markets. In the past, we relied primarily on bank borrowings but decided to mitigate the risk of just relying on banks by diversifying the sources of funding,” he said.
The perpetual bonds, which have been fully subscribed to in equal portions by RHB Bank Bhd for the floating rate tranche and Great Eastern (part of Singapore-based OCBC) for the fixed rate tranche, can be drawn down within a two-year period.
“Basically, the bonds strengthen our capital base since they are treated as equity, and we only need to draw down when we need to, so there's no negative carry,” Chan said.
A negative carry situation arises when the cost of financing an income becomes greater than the income generated.
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