TROPICANA Corp Bhd founder and major shareholder Tan Sri Tan Chee Sing is injecting real estate into the listed entity again. It is the property tycoon’s biggest injection ever this time around and he says it will be the last one.
In the exercise, which is somewhat of an amalgamation, Tan and his family will dispose of 12 privately owned companies that collectively own 787.72 acres of land across the Klang Valley and Johor for RM1.85 billion. Tan stresses that the assets are being injected at a 17.9% discount to the indicative market value.
It is a cash-plus-equity deal in which Tropicana will issue 1.11 billion new redeemable convertible preference shares (RCPS) and pay RM247.1 million cash. On top of that, the company will assume bank borrowings of RM271.8 million from Tan.
The property developer will acquire land bank of 1,116.88 acres in the Klang Valley and Johor with a potential total gross development value (GDV) of RM24.82 billion.
Tan, who is back in the company’s driving seat, highlights research analysts’ concerns over potential conflicts of interest, given the fact that he owns many private assets that are collectively worth as much as the listed Tropicana.
That, he adds, is the rationale for the massive asset injection.
“The analysts think this (potential conflicts of interest) is the reason our shares don’t do well. That has been their call. To me, if that is the situation, fine ... I want to solve the problem, once and for all,” Tan tells The Edge in an exclusive interview.
He says that while he was planning the asset injection, he stopped buying land under his private companies. Instead, all recent acquisitions were made directly by Tropicana.
“After this injection, I will have no more privately owned commercial land. 1,000% no more. The only thing left will be my residence,” he jokes.
The completion of the corporate exercise and proposed collaborations will bring Tropicana’s land bank to a total of 3,572.6 acres with a combined GDV in the pipeline of RM78.12 billion, which should keep the company busy for 10 to 15 years.
In the meantime, Tropicana is forming joint ventures (JVs) with Cenang Resort Sdn Bhd, Sinaran Ramah Sdn Bhd, Pantai Kok Resort Development Sdn Bhd, Suci Padu Sdn Bhd and Ibarat Indah Sdn Bhd to develop four tracts measuring a total of 1,328.76 acres in Pulau Langkawi and Pekan Nenas in Johor. The total estimated GDV of the proposed JV developments is RM6.7 billion.
“No land will be injected into the JVs but the exclusive development rights will be assigned to Tropicana. In other words, my private companies have no more rights to develop the projects,” Tan explains.
Better financial performance
Tropicana’s debts soared to more than RM1 billion in 2012 — the year Tan undertook a massive asset injection. The company’s borrowings grew further to RM1.92 billion in the following year. But its gearing and debts came down over the years with some asset sales, like that of Tropicana Mall. As at Sept 30, 2018, Tropicana’s borrowings stood at RM1.99 billion compared with a cash balance of RM1.15 billion.
Tan stresses that Tropicana will not need to borrow for the latest asset injection because the bulk of the purchase consideration will be settled via the issue of RCPS.
In its financial year ended Dec 31, 2013 (FY2013), Tropicana posted a net profit of RM362.31 million, up 111% from the preceding year. The big boost came from a net gain in fair value adjustment to RM217.6 million from RM103.4 million in FY2012. Revenue in FY2013 rose 134% year on year to RM1.48 billion.
However, the company’s earnings fell between FY2013 and FY2015, which is hardly surprising as most developers were hit by the prolonged slowdown in the local property market at the time.
More recently, Tropicana’s net profit for the cumulative nine months ended Sept 30, 2018 (9MFY2018), grew 13.5% year on year to RM118.55 million, thanks to cost-saving efforts in its projects.
Revenue, however, fell 18% year on year to RM1.04 billion on lower sales and progress billings across projects.
Tropicana’s property sales for the nine-month period totalled RM542 million while unbilled sales continued to deplete, falling below RM1 billion to RM918 million as at Sept 30, 2018 — a level not seen for almost six years since the fourth quarter of 2012 (RM952 million).
Some quarters say not much value was created for Tropicana from the asset injection in 2012, as its share price proved. The stock peaked at RM1.667 in late May 2013 but has been on a downward trend since. It closed at 89 sen last Friday, giving the company a market capitalisation of RM1.2 billion.
Sabah, the profit centre
According to Tan, some of the proposed JV projects will be launched between June and July this year. But to him, the two most important projects to be unveiled this year are the one in Genting (potential GDV of RM14 billion) and the resort in Sabah (GDV yet to be determined).
“Last year was bad for the property market. I expect this year to be good. That’s why I think it is a good time to launch the Genting project and the Sabah project, which are already under the group,” Tan says, adding that the two projects are not related to the latest asset injection and proposed JVs.
Tan reveals that Tropicana owns 100 acres of freehold commercial land in Genting, which it had managed to buy for a very good price, thanks to a personal connection.
“We will launch the 550 sq ft units in March this year. We expect to sell them at RM1,200 psf, a price you can only find in KL. We are targeting 70% to 80% of buyers from China and the rest from Singapore and Malaysia,” he says.
As for the project in Sabah, Tan says Tropicana had bought half of a 1,000-acre island managed by the Kota Kinabalu City Hall at an attractive price as well. The group plans to build two-storey villas and a five to six-storey five-star resort hotel there.
Tropicana is targeting buyers from China and South Korea for the villas.
“Tourism is doing superbly well in Sabah, which has the best waters in Malaysia — as good as that of the Maldives. Sabah is very popular with the Chinese, many of whom go there for golf. So, we are building a golf course on the resort,” Tan says.
“To us, the Sabah project is a profit centre. We are going to buy a seaplane for about US$4 million, probably the first seaplane in Sabah, so the tourists can move around the islands there.”
‘I want to get involved in everything’
As the saying goes, “Businessmen never retire, more so if you are a Chinese businessman”.
Self-made property tycoon Tan Sri Danny Tan Chee Sing may have handed over the baton of leadership to his successors at Tropicana Corp Bhd in June 2015, but he never stopped thinking about the business.
In the past 3½ years, although he had stepped back from day-to-day operations, he continued to identify business opportunities in his capacity as adviser of Tropicana, the flagship he founded in 1979.
But now, the seasoned developer thinks it is time to take back the reins and be more involved in charting the fate of Tropicana.
“I have to come back to kick off all these plans. I want to get involved in everything. I want us to make the right decisions faster. That’s the life of a businessman. We can hire as many professionals as we want, but if the boss is more involved, the employees will have to work harder and do a better job,” Danny tells The Edge.
The 64-year-old, who made a name for himself with the development of Tropicana Golf & Country Resort, is ranked by Forbes as Malaysia’s 19th richest man with a fortune of US$990 million.
Considering that the local property market has been experiencing a prolonged slowdown, Danny says his children must work harder and should not take things too easy.
“The second generation are still learning. They need some time, but I believe in them,” he says.
Interestingly, his return to Tropicana is similar to that of his brother Tan Sri Vincent Tan Chee Yioun’s dramatic comeback from retirement over at Berjaya Corp Bhd.
Recall that Vincent, who retired from Berjaya Corp’s board in February 2012 upon turning 60, returned to the helm about five years later.
In November 2017, Vincent came back as executive chairman of Berjaya Corp, taking over from his eldest son Datuk Seri Robin Tan Yeong Ching, who, however, remains the CEO.
“Both Vincent and I are the same; we are workaholics. In fact, I think he works even harder than me. At least I can go on a cruise every year. There were a couple of times when we were supposed to go together, but Vincent couldn’t make it at the last minute,” says Danny.
The Tropicana founder was also 60 when he handed over the reins to the second generation.
Today, his eldest son Datuk Dickson Tan Yong Loong is deputy group CEO, and third son Dion Tan Yong Chien is the group’s managing director. However, his second son Dillon Tan Yong Chin resigned as executive director in July last year, citing personal commitments.
His only daughter, Diana Tan Sheik Ni, also resigned as executive director in June 2015 to pursue other business and career opportunities.
Danny has pledged to work hard for his children, who he deems very lucky, now that he is back in the driving seat.
“Many people don’t understand ... I started from nothing, I came from a poor family. I am not shy to tell people that my father was very poor, so I had to work very hard. Tropicana is my company. I still work very hard today. I only go on a holiday once a year,” he says.