Gagasan Nadi Cergas to buy hostel asset concessionaire KPS

TheEdge Wed, Oct 30, 2019 10:14am - 4 years View Original


KUALA LUMPUR: Gagasan Nadi Cergas Bhd announced yesterday that it plans to acquire polytechnic hostel asset concessionaire Konsortium PAE Sepakat Sdn Bhd (KPS) for RM158 million, which is about 84% of the company’s market capitalisation of RM188.25 million, based on its last traded share price of 25 sen.

In a statement, Gagasan Nadi Cergas said it will raise the needed funds via the issuance of Islamic medium-term notes (MTNs) and a convertible sukuk. It has signed a conditional share sale agreement (SSA) for the acquisition of KPS’ 100% equity interest.

KPS holds concession agreements with the Malaysian government for seven polytechnic hostels in six states, entailing design, construction and facilities management.

The seven concession hostels are Polytechnic Banting (Selangor); Polytechnic Ungku Omar, Ipoh (Perak); Polytechnic Port Dickson (Negeri Sembilan); Polytechnic Seberang Perai (Penang); Polytechnic Ibrahim Sultan, Pasir Gudang (Johor); Polytechnic Jeli (Kelantan); and Polytechnic Kota Bharu (Kelantan).

Construction of all seven was completed and handed over in 2016. They are currently maintained by KPS under concession until Sept 25, 2035.

KPS recorded RM15.3 million in profit after tax for the financial year ended Dec 31, 2018 (FY18), while its net assets stood at RM234.5 million.

With the proposed acquisition, Gagasan Nadi Cergas said it will be entitled to the future cash flow streams from the seven concession agreements over the remaining tenure period, while allowing the company to extend its in-house facilities management services to the seven polytechnic hostels.

“The acquisition not only propels Gagasan Nadi Cergas to be a leading facilities management player in the tertiary hospitality segment, but also further strengthens our business model by making our profitability even more predictable for investors.

“Moreover, the new concessions on-board could potentially double up the earnings from our recurring income segment, complementing the anticipated growth from the construction business as well,” said its group managing director Wan Azman Wan Kamal.

Of the RM158 million price tag, RM6 million has been paid following the SSA; RM92 million will then be funded through the issuance of RM200 million Islamic MTNs over 10 years. The remaining tranches of these MTNs will be used to finance future investment activities, working capital requirements, and other general corporate purposes.

The company will raise the remaining RM60 million by issuing a convertible sukuk that will have a tenure of eight years and a conversion option to exchange for Gagasan Nadi Cergas shares anytime during the tenure at a conversion price of 32 sen a share.

The acquisition, subject to authorities’ and shareholders’ approvals of all three proposals, is expected to be completed in the first quarter of 2020.

Gagasan Nadi Cergas, which currently owns two 20-year student hostel concessions, expects the proposed acquisition to contribute positively to its earnings for FY20 onwards.

Its shares were not traded yesterday, as the company sought a suspension to make way for the announcement. The stock will resume trading today.

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