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| KEuro’s move to pare Talam stake puzzling |
| Written by Fong Min Hun | |||
| Monday, 10 August 2009 00:00 | |||
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What’s surprising, however, has been KEuro’s move to reduce its shareholding in Talam Corp Bhd, from 41.51% in February to 31% on July 31. Ostensibly to reduce its bank borrowings, the move is still unexpected as Talam has considerable landbank for development in prime areas in the Klang Valley such as Ampang, Sepang, Puchong, Bukit Jalil and Rawang. According to Bloomberg data, the net tangible asset (NTA) per share for Talam is 18 sen, while the share was trading at 9.5 sen last Thursday. Talam’s landbank, according to its 2009 annual report, amounted to 5,792 acres as at Jan 31, 2009. The value on the books came up to RM1.13 billion, including development costs. Last month, KEuro announced on Bursa Malaysia that it would sell a portion of its equity interest in Talam. The transaction raised RM15.89 million, it said. A shareholding announcement filed with Bursa on July 17 showed that KEuro sold 157.4 million shares of Talam, which meant the shares were sold at an average price of 10 sen apiece. There was no corresponding filing to indicate the emergence of a new substantial shareholder. There doesn’t seem to be a good reason for KEuro to bring its stake to below the 33% mark, considering the amount raised is not really much. Furthermore, Talam is poised to be uplifted from Practice Note 17 (PN17) status after it met the requirements of its regularisation plan last June. KEuro said the sale of its stake in Talam was to pare down its bank borrowings, but it’s unclear how much of a dent RM15.89 million would make on its debt load or its interest-servicing cost. KEuro’s short- and long-term borrowings come up to RM262.84 million, with long-term borrowings at RM123 million. With total shareholders’ equity at RM119.2 million, KEuro’s gearing is just above 1.03 times (long-term borrowings/shareholders’ equity). A repayment of RM15.89 million would bring its borrowing down to RM103.4 million, or 0.86 times gearing. The disposal, however, does raise a question of whether there is someone new emerging in Talam. Talam, a township developer, has been classified as an affected company under PN17 since Sept 1, 2006, after its auditors were unable to provide an opinion on its results for its FY2006 ended Jan 31. Talam also defaulted on several of its term loans and bond obligations. As part of Talam’s regularisation plan, the company issued a number of securities to various creditors, including the now-defunct discount house Abrar Discounts Bhd. Abrar received preference shares, loan stocks and Islamic debt securities worth RM423.35 million as settlement from Talam as part of the latter’s regularisation plan. In a neat piece of business, KEuro, which is still Talam’s single largest shareholder, purchased the debt from Abrar on June 26 for RM125 million, representing a 71% discount to the nominal value of the debts. With the purchase of the debt and the listing of new preference shares and loan stocks on July 1, Talam has met and completed all the proposals of its Securities Commission-approved regularisation plan. Talam has repeatedly said that it would seek upliftment from its PN17 status upon completion of the plan, although the status of that application is unknown. According to its most recent results filed for its 1Q2009 ended April 30, Talam turned in a modest net profit of RM2.24 million. It is unlikely that Talam will contribute much to the bottom line of KEuro after it emerges from PN17, but its share price has more than doubled from the start of the year. Talam’s share price has picked up steadily since trading at 4.5 sen apiece in April, hitting its peak of 14 sen per share on May 13, before finally settling down to trade around the 9.5-sen mark, which is where it closed last Thursday. According to Bursa filings, much of KEuro’s disposal of Talam shares was made after April 21, which is when the price of the share climbed above the six-sen mark. KEuro’s disposal of Talam shares could be read as an act to keep the company afloat after two of its key earnings drivers — the Canal City project and the West Coast Expressway (WCE) — were put on ice. In the case of the Canal City project, which is under KEuro’s 35%-owned associate Canal City Construction Sdn Bhd, it is learnt that the current Selangor government had requested revisions to the plan. Under the new plan, the land, which has already been earmarked for the project, would be sold outright to Canal City Construction. The price of the sale has yet to be determined, but the question is whether KEuro is in a position to raise the necessary funds to finance its 35% portion of the project. Prospects for the WCE look even bleaker owing to the uncertainties of its fund-raising. KEuro was supposed to achieve a financial close by March 19 but so far there has not been any announcement to the effect. KEuro said the documents pertaining to the financing were filed on March 17 but there has been no formal development in terms of the WCE’s progress. WCE is a project mooted by the founder of KEuro, Tan Sri Chan Ah Chye, more than 14 years ago. Held under subsidiary Konsortium LPB Sdn Bhd, it has the Perak and Selangor governments as shareholders with a 20% stake each. IJM Corp Bhd has a 25% stake in KEuro, which lends credence to the belief that the project will take off some time in the future. With the interruption in its expected revenue stream and with no postive changes expected on the horizon, KEuro’s move to raise cash by selling off its stakes in subsidiaries may be a precautionary move. What is clear, however, is that KEuro will likely struggle with a challenging fiscal year unless a longer-term solution is found — in the form of the two projects being kickstarted again or a new source of revenue — rather than selling down its assets. This article appeared in Corporate page of The Edge Malaysia, Issue 767, Aug 10-16, 2009.
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