KUALA LUMPUR (March 23): Sin Heng Chan (M) Bhd’s (SHC) proposed acquisition of facility management and construction outfit Tunas Selatan Pagoh Sdn Bhd (TSP) for RM145.9 million in a related party transaction (RPT) has been deemed fair and reasonable by independent advisor Mercury Securities Sdn Bhd.

The proposal entailed a cash payment of RM70 million via borrowings, and issuance of ordinary and preference shares worth a combined RM75.9 million, as consideration for TSP to Tunas Selatan Construction Sdn Bhd (TSC).

TSP currently holds a 40% stake in Sime Darby Property Selatan Sdn Bhd (SDPS), which in turn holds a 17-year asset management concession for Pagoh Education Hub in Johor. The other 60% is indirectly held by Sime Darby Property Bhd.

Pagoh Education Hub houses branch campuses of Universiti Teknologi Malaysia (UTM), International Islamic University Malaysia (IIUM), Universiti Tun Hussein Onn Malaysia (UTHM) and Politeknik Tun Syed Nasir Syed Ismail.

Mercury Securities, in a circular to SHC shareholders, pointed to the total receipts of RM3.3 billion to be generated through the concession period by SDPS Group. In its first year, the new income stream could increase SHC’s profit after tax per share by between 2.45 sen and 2.71 sen.  

Mercury Securities also said the deal is at a 6.1% discount to its estimated TSP’s fair value at RM155.4 million.  

It added that the acquisition represents a discount of 30.7% to TSP’s audited net assets of RM210.5 million as at end-2019, which allows SHC to recognise a one-off gain of RM64.6 million.

However, the adviser underlined a possible disadvantage to the minorities being the proposed exemption to exclude the vendors and the PACs from undertaking a mandatory general offer post-acquisition.

TSC’s shareholders include Tunas Selatan Sdn Bhd (70%) (TSSB), Seong Hoe & Choong Corp Sdn Bhd (20%) and Kuala Lumpur Medical Centre Sdn Bhd (KLMC) (10%).

The deal is an RPT, where SHC’s 12.69% shareholder Tan Sri Esa Mohamed, who is the controlling shareholder in TSSB. Seng Hoe is controlled by SHC managing director Datuk Choo Keng Weng, who also owns 29.26% in SHC.

The deal entails the issuance of RM110 million SHC shares at 33 sen apiece or RM36.3 million, alongside 120 million ICPS at 33 sen or RM39.6 million. The ICPS are convertible into SHC shares on a one-for-one basis, also at 33 sen per share.  

It will see Esa emerge as the largest shareholder in SHC with up to 37.51% equity interest, followed by Choo, whose interest will be diluted to as low as 16.64%. Overall, the two parties together with PACs will see their combined shareholding rise to up to 63.87%, and further to 75.86%, should the ICPS be converted.

“Premised on our overall valuation of the proposals on a holistic basis, we are of the opinion that the proposals are fair and reasonable and are not detrimental to your interests.

“Accordingly, we recommend that you vote in favour of the resolutions pertaining to the proposals to be tabled at SHC’s forthcoming EGM,” Mercury Securities said.

SHC is involved in the plantations business, as well as facility management services for buildings.

Shares in the company rose half a sen or 0.8% to close at 63 sen on Monday, valuing the group at RM83.8 million.