MPCorp’s corporate exercise in limbo?

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A PROPOSED corporate exercise aimed at reviving Malaysia Pacific Corp Bhd (MPCorp) is possibly hanging in the balance.

Its white knight, Tey Por Yee, is entangled in a lawsuit at Protasco Bhd that could see him take a step back from the beleaguered property developer.

Protasco, a construction and property development company in which Tey has 16.7% equity interest, is suing him and his partner, Ooi Kok Aun, for US$27 million in damages for fraud and conspiracy, and general damages, aggravated and exemplary, as the two supposedly did not disclose their interest in oil and gas company PT Anglo Slavic Utama. The duo are selling a 75% stake in the latter to Protasco for US$55 million.

However, Tey and Ooi have denied all allegations brought forward by Protasco and will be filing their defence by the end of this month.

In a statement last week, Tey and Ooi said, “We have carried out our fiduciary and statutory duties to the best of our ability. We resolutely deny all these allegations.”

Tey’s mobile phone goes to voicemail when he is called, indicating that he is travelling on business. “He seems to have his hands full,” a source familiar with Tey says.

With this legal issue at Protasco, Tey and MPCorp management’s plan to raise RM322.2 million via a rights issue and cancellation of 50 sen of par value from its RM1 shares may be back-burnered.

In July, MPCorp proposed the trimming of 50 sen off the par value of its RM1 shares, a renounceable rights issue of 322.2 million new shares with 161.1 million warrants at an issue price of 50 sen per rights share on the basis of four rights shares and two free warrants for every five shares held, and two renounceable rights issues of up to RM80.5 million each — irredeemable convertible unsecured loan stock (ICULS) A and B — on the basis of two ICULS A and B shares for every MPCorp share held. ICULS A has a tenure of five years and 2% coupon while ICULS B is offering 1% over 10 years.

MPCorp is looking to raise between RM141.7 million and RM230.1 million, depending on the take-up rate of its proposal. In its announcement, it said it also had 115.1 million outstanding warrants that expire in April next year. If fully converted prior to the entitlement date and all shareholders subscribe for the proposed fundraising, the maximum proceeds from the fundraising would be close to RM322.2 million.

Tey is slated to take up between 16.9% and 27% in MPCorp, but whether he is still hungry for the deal remains to be seen.

As the controlling shareholders, he and 75-year-old Datuk Bill Ch’ng Chong Poh, who was the CEO of the company and has a 56% stake in it, have agreed to take up their portion of the rights issues.

From the corporate exercise, MPCorp is looking to settle a debt of RM115 million owed to AmanahRaya Development Sdn Bhd and between RM15 million and RM35 million to Ch’ng’s Top Lander Offshore Inc — being cash extended to the company — and repaying RM10 million to RM20 million in borrowings. The rest is to be utilised as working capital and expenses.

Also, in March last year, MPCorp defaulted on the repayment of principal sums and interest to RHB Bank, collectively amounting to RM97.4 million.

One of MPCorp’s assets is Wisma MPL, a 19-storey office tower in Jalan Raja Chulan, Kuala Lumpur, that is pledged to RHB Bank for RM80 million. This makes up the bulk of the company’s short-term debt.

In its announcement to the local bourse on the default, MPCorp said it had a large landbank and would be “able to repay its debts as and when they fall due”.

A recent problem with AmanahRaya could, however, lock up this land.

The AmanahRaya conundrum

Last week, MPCorp announced that it had failed to live up to its end of a settlement agreement with AmanahRaya, and was served with a notice of default from the latter after failing to pay it RM115 million.

MPCorp says it is “seeking legal advice on the notice and will take appropriate steps to address the issue”, but there is likely very little that can be done.

To recap, MPCorp and AmanahRaya entered into an agreement in August 2008 to develop 638 acres in Nusa Damai in Iskandar Malaysia in Johor. AmanahRaya acquired 22% of MPCorp’s wholly owned Lakehill Resort Development Sdn Bhd for RM99 million cash with a fixed financial return of 12% for a duration of three years. The terms included a put option (exercisable by AmanahRaya), requiring MPCorp to purchase the former’s participation in the joint venture for RM99 million plus a 12% premium.

In March 2012, AmanahRaya exercised the put option and RM110.9 million became due on May 20 that year.

MPCorp, after much legal wrangling, was ordered by the courts to pay AmanahRaya RM5 million cash and RM115 million within six months of the date of the settlement agreement, which ended last week.

The question is, can MPCorp fork out such a large sum, considering it is an ailing company?

In its financial year ended June 30, 2014, MPCorp suffered a net loss of RM31.7 million on revenue of RM16.9 million. As at June 30, it had RM718,000 in cash and short-term borrowings of RM89.9 million while long-term debt commitments were RM266,000.

However, under its current liabilities, MPCorp has trade and other payables amounting to RM187.5 million.

In FY2014, the company paid RM4.1 million in finance costs, down from RM19.4 million a year earlier. The decline was largely due to a waiver of interest expense on advances by Top Lander Offshore, a 56.4% shareholder of MPCorp.

According to its 2013 annual report, interest payable to Top Lander Offshore was RM2.1 million. Advances from the latter (presumably in 2013) amounted to RM1.9 million. In another part of the annual report, it is stated that Top Lander Offshore is owed RM21 million and that interest rates for such borrowings range from 13% to 15%.

MPCorp has pledged this 19-storey office tower in Jalan Raja Chulan to RHB Bank for RM80 million.

Will Tey proceed with the corporate exercise?

How important MPCorp is to Tey remains to be seen.

Other counters in which Tey has substantial stakes include Wintoni Group Bhd (previously Winsun Technologies Bhd), Ire-tex Corp Bhd, Asdion Bhd, Nexgram Holdings Bhd, Malaysian AE Models Bhd and Protasco. He is also managing director of Nexgram, an ACE Market-listed applications and platform provider.

MPCorp may not be a key investment for Tey by virtue of the fact that none of his associates is in the company. Generally, he has a few associates who also surface in the companies he has invested as directors or shareholders (see table on Page 33).

For instance, Ooi, who is Protasco’s independent non-executive director, controlling 3.7% or 12.5 million shares, also has 14.1% equity interest in Nexgram, in which Tey has a 24.6% stake or 463.2 million shares.

Similarly, in Ire-tex, Tey sold 44.6 million shares or a 9.7% stake on July 10 and ceased to be a substantial shareholder. Meanwhile, Ooi has a 7.2% stake or 9.4 million shares in the company and Tey was appointed an executive director on May 30.

In July, when Tey surfaced in MPCorp, he said,

“MPCorp is a property holding company … I see value in it, the assets are good … it depends on who’s running it.”

So, will he stick around to run MPCorp?

This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.