This article first appeared in The Edge Financial Daily on August 26, 2019
KUALA LUMPUR: The Tee family, the major shareholder of Kerja Prospek Group Bhd who last year bought into GSB Group Bhd, is determined to turn loss-making GSB profitable.
The family — comprising Kerjaya Prospek executive chairman Datuk Tee Eng Ho, his wife Datin Toh Siew Chuon and his brother Tee Eng Seng — on Aug 9 announced the injection of RM714 worth of real estate assets in GSB.
The asset injection, which is deemed to be a related party transaction, will be settled by a combination of RM100 million cash, redeemable convertible preference shares (RCPS) and share subscription deals. GSB will also undertake a private placement of 125 million shares, upon completion of the purchase of the assets.
In exchange for the acquisition price and a dilution of the company’s share base, Tee promised to turn around GSB. He expects the earnings will kick in as soon as early next year (for GSB’s fourth quarter ended March 31, 2020 [4QFY20]) with the “major turnaround” in the following year (FY21).
GSB has been bleeding red ink for the past five years. The company’s net loss of RM1.37 million in FY15 had increased to RM2.21 million in FY19, according to GSB’s latest annual report. This is the second time Tee has injected a massive asset into a company. Previously, he had injected two privately held companies into Kerjaya Prospek (previously known as Fututech Bhd) for RM458 million, settled with cash and shares in 2015.
Speaking on bringing GSB into the black, Tee said: “It is the same case as Fututech, which had been in the red for seven [straight] years. When I went in, I immediately changed the whole thing.”
He said the growth seen in Kerjaya Prospek now is partly due to the asset injection.
“At that time when Kerjaya Prospek’s market capitalisation was worth less than RM100 million, we brought in [assets] with over RM400 million (four times larger than the market capitalisation). When I want to do it, I do not want to do small,” he said.
This time, the asset injection of RM714 million is valued at seven times GSB’s current market capitalisation of RM102.20 million (based on its closing price of 18.5 sen last Friday).
Tee views the injection of assets worth larger than the company as a strategy to grow the company and create value for shareholders. Over the years, he said Kerjaya Prospek’s market capitalisation has grown from RM50 million in 2011, to the RM2 billion level, although it has currently come down to RM1.74 billion.
“[Judging from his track record], minority shareholders have no reason to not support [this investment],” he said, adding: “Based on GSB’s current net asset per share of 10 sen, the acquisition is fair for minority shareholders [as compared with the company’s new issue share of 17 sen per share on this proposed acquisition].”
“Overall, this corporate exercise is good for minority shareholders,” he said, explaining that the Tee family only takes back 14% of cash (RM100 million) from this proposed deal, while the remaining will be settled in shares.
When asked why he resorted to backdoor listing of the privately owned assets, he said this is an easier way of dealing with the matter and more importantly, the family would still own a majority stake in the company after the exercise.
Upon completion of the asset divestment to GSB, the Tee family’s shareholding will be enlarged to 67.33%% from 40.82%. After the conversion of the RCPS, the shareholding may further expand to 80.14%.
“I want to do everything in a PLC (public listed company). It is very transparent and good for management. It will be easier for the next-generation,” he said.
Being a listed company, it will be able to enjoy cheaper funding. Also, he believes buyers will be more comfortable to buy properties from a listed company.