IT’S deja vu for Tropicana Corp Bhd. Founder and major shareholder Tan Sri Danny Tan Chee Sing is embarking on a second amalgamation exercise injecting his privately-owned assets into the listed company.
And this time around the 64-year-old property tycoon is doing it on a bigger scale.
On Thursday, Tropicana announced a RM1.85bil asset acquisition proposal.
The assets involved 1,116.88 acres owned by him in return for new redeemable convertible preference shares (RCPS) of Tropicana, plus some cash and the assumption of his private debt.
Recall, a similar exercise was done by Danny in March 2012, when he injected 73 privately-held properties comprising 49 parcels and 16 buildings worth RM948.7mil into Tropicana, then known as Dijaya Corp Bhd.
It was said to be one of the largest related party transactions in the country.
That acquisition was satisfied with RM250mil in cash plus the issuance of redeemable convertible unsecured loan stocks (Rculs) that carried a staggered conversion price ranging from RM1.30 to RM2.50 over 10 years.
To facilitate that exercise, Tropicana carried out a rights issuance to raise up to RM441mil. The exercise had involved up to 491.3 million new shares at an issue price of RM1.20, together with a one-for-four bonus issue.
That exercise saw Danny owning more than 75% of Tropicana’s equity and had also morphed the company into the billion-ringgit market capitalisation club.
Higher gearing for Tropicana
Tan’s proposal this week came along with his appointment as the executive vice chairman of the group after more than a three-year hiatus.
In June 2015, Danny, who then held 63% in Tropicana, had announced his retirement.
On the same day, Tropicana announced the redesignation of Tan Sri Lim Wee Chai, 61, to non-executive chairman from non-executive deputy chairman.
Lim’s appointment as deputy chairman came in October 2017 after he bought more than 10% stake in the company.
He is also the founder and executive chairman of the world’s glove maker Top Glove Corp Bhd.
Under the proposed exercise, the total consideration comprising RM1.33bil to be satisfied via the issuance and allotment of 1,110.1 million of Tropicana RCPS at an issue price of RM1.20 per unit, RM247.1mil to be satisfied in cash by Tropicana and RM271.8mil to be satisfied through the refinancing and/or assumption of Danny’s borrowings.
For the cash portion of the settlement, Tropicana would fund it entirely via bank borrowings.
“As at Sept 30, 2018, the amounts owing by the acquiree companies to Tan is RM1.51bil,” according to the proposal filed with Bursa Malaysia.
The RCPS issuance price is 26% higher than the last trading price of Tropicana shares at 88 sen apiece.
“The exercise would see Tropicana assuming some of Danny’s private liability,” says a market observer.
“The gearing level is quite high for a property developer,” an analyst says.
According to the document on a filing with Bursa Malaysia, following the exercise, Tropicana gearing will increase to 0.72 times from 0.56 times as at Dec 31, 2017.
Meanwhile, should Danny converts all his RCPS into Tropicana shares, his stake in the company would increase close to 80% from 63.7% currently.
Upon completion of the exercise, Tropicana’s landbank would increase to 2,243.93 acres, of which the company estimate would have a GDV of RM71.42bil.
Additionally, the company announced that it had signed memoranda of understanding to negotiate the terms of the proposed collaborations with four parties to jointly develop the land at Pantai Cenang, Pulau Rebak Kechik, Pantai Kok and Pekan Nenas.
Tropicana points out that the collaboration will give the company access to a further 1,328.76 acres with an estimated GDV of RM6.76bil.
Despite the expansion in its assets size, the gearing level would be the main issue for the firm for it to embark on future development. As of Sept 30, 2018, Tropicana’s cash stood at RM1.2bil.
The return of Danny to Tropicana came as a surprise especially at the time when the outlook of the property market is not so bullish.
The seasoned developer, who shot to fame with his development of Tropicana Golf & Country Club in the mid-90s, is also a brother of tycoon Tan Sri Vincent Tan.
In June 2015, Danny announced his retirement from Tropicana, a company he founded 39 years ago. He handed over the reins to his sons Datuk Dickson Tan Yong Long and Dion Tan Yong Chien, the deputy group chief executive officer and group managing director of Tropicana respectively.
“Timing and forward thinking play an important role in building up a successful future, as I saw the potential of the land when they were available a few years ago.
“As a seasoned entrepreneur, I then took the risks to buy the land.
“Considering the group’s development needs, we have added strategic land banks.
“Thus, now is the right time for me to return and pursue a full-time role to personally oversee the development of future projects,” says Danny.
Did you find this article insightful?