Can Tropicana solve its debt woes?

Will Tropicana Corp Bhd be able to wiggle itself out of the debt bind that the group has been saddled with? This has been a long-standing question for the group that aggressively piled on debt for its ambitious projects but was largely set back by the economic malaise arising from the Covid-19 pandemic.

Over the last few months, Tropicana Corp has sold RM623mil worth of land in Gelang Patah, Johor, to two data centre operators. It has also sold land to other Malaysian parties.

Notably, these Malaysian parties which, include PH World Property, KSL Holdings Bhd and Paragon Globe Bhd, have themselves sold land to data centres, buffering up their cash positions.

But Tropicana Corp’s journey to recovery is still ongoing, with a number of twists and turns.

Just this week, the company held a meeting with the holders of its RM248mil worth of perpetual bonds, or perps, in short.

The bondholders had to vote on whether to accept a swap of their perps with soon-to-issued senior rated corporate bonds by Tropicana Corp. The perps, which had a call date on Sept 25, 2024, carry 7% interest rate, while the new bonds will have a coupon of 6.25%. Those who accept the swap will also be given a 0.25% one off payment as a sweetener to the deal.

Tropicana Corp only managed to secure 73.7% votes in favour of the company’s swap proposal, which means it will not be able to compel the perp holders who rejected the swap. The group needed 75% of votes in favour to do that.

However, Tropicana Corp is seeking for the perp holders who had not voted positively, to reconsider and agree to swap to the senior-rated corporate bonds, given that these bonds have a definite redemption date, thus lowering the risk held by the perp holders.

Tropicana Corp has given until the end of next week for those who rejected the swap to make a decision.

Company officials, speaking with StarBiz 7, explain that the swap exercise is premised on the company seeking to save on interest payments.

In any case, the officials say that the company is likely to pay whatever is due to this group of perp holders if they decide to stick with their perps.

The bigger picture, Tropicana Corp officials explain, is that the group’s degearing exercise is well on track, supported by significant asset monetisation efforts such as land sales, coupled with new property developments in the pipeline.

“Going by what we are doing, our gearing should come down to around 0.56 times from the 0.63 times level at the beginning of the year. Bear in mind, this gearing takes into account our perps,” the officials add.

Here is a snapshot of how that is likely to happen.

As at June 30, Tropicana Corp had a total of RM3.36bil in debt (including perps). This includes another two tranches of perps of RM270mil and RM130mil which come due on April 2026 and September 2027, respectively.

It also has RM745mil of outstanding corporate bonds.

Through a series of sales of properties and land, the company expects to raise some RM2bil by the end of the year. It will also get fresh capital of RM350mil from the planned senior bond issuance. Most of the sale receipts are from deals already announced although a handful are being finalised.

Company officials note that some of the sale receipts will help the company with its working capital to launch new projects.

Recovery from debt woes

Tropicana Corp’s debt woes sunk to its lowest last year.

Last April, MARC Ratings downgraded the group’s bonds to a negative rating outlook which it said was based on “Tropicana Corp’s continued weak financial performance and slower-than-expected asset disposals”.

Tropicana Corp got into this situation after certain asset disposals didn’t go as planned. In the end, the property developer was able to fulfil all its bond obligations after it disposed of some of its assets.

To be noted, in May, MARC Ratings revised its outlook on Tropicana Corp to stable from negative, in light of what it deemed to be an improved credit profile the company, driven by its ongoing deleveraging exercises.

Interestingly, Tropicana Corp has no analyst coverage.

The group has a current market capitalisation of RM3.06bil and its share price has been largely flattish, managing only a 2.3% rise year-to-date, compared with the FBM KLCI’s 12% and the KL Property Index’s 26%, according to Bloomberg.

Currently, Tropicana Corp’s net gearing ratio is 0.53 times.

According to RHB Research, the property sector’s average net gearing is between 0.2 times to 0.3 times, which highlights Tropicana Corp’s gearing is on the higher end.

What now for Tropicana Corp?

According to Tropicana Corp, the group may sell more land if there are interested buyers or investors looking to do joint ventures with them.

The group notes the main launches that will drive its profit this year would include Tropicana Aman Hana, Tropicana Aman Umara, Tropicana Gardens Edelweiss, Tropicana Cenang Assana, Tropicana Metropark SouthPlace, Tropicana Alam Avisa.

Another notable property product is the Lido Waterfront Boulevard which has a gross development value (GDV) of RM34bil.

This integrated development is situated on reclaimed land along the waterfront bordering Singapore.

Thus far, the group has total unbilled sales of RM2.3bil with a GDV value of RM6.5bil, which will give Tropicana Corp earnings visibility for the next three years.

An indication of how investors read Tropicana Corp’s efforts to sort out its debt woes may be seen through the interest they have in the soon-to-be issued RM350mil worth of new rated bonds by the group.