Monday, September 2, 2013

Tropicana - Danga BAy

The Tan family is creating another listed property arm – Albedo – for its planned major activity in Iskandar Malaysia brings up the question of competition to Tropicana, which also has projects in Iskandar, although mainly in Danga Bay.

The RTO is said to be paid for via new Albedo shares, thus giving Tan control over the Singaporean company.

The parties had agreed to include the deal two additional parcels in the same area. This will bring the tract in question to 919 acres.

It was quoted as saying that Tropicana could benefit from Albedo by helping the latter manage its property development projects in Iskandar. However there no firm plans at the moment.

Market observers do not think there is a conflict of interest competition wise because Albedo’s product mix is largely industrial and commercial. Tropicana, on the other hand, builds mostly residential properties.

Tropicana is unlikely to buy more land in Nusajaya where Albedo’s tract is located. Tropicana’s existing developments are in Danga Bay, out of Albedo’s competitive reach at the moment (Sept 2013).

Given Tropicana’s high gearing, Tropicana was not in a position to take on more assets, so Tan decided to do it in a private capacity with Albedo. Tropicana’s net gearing stands at 0.75 times which it aims to reduce to 0.5 times.

At the moment (Sept 2013), market observers do not think Tan will inject Albedo into Tropicana. People are very watchful of his moves because they are expecting Tropicana to lower its gearing and start delivering earnings.

While an asset injection does not appear likely, Tan is said to be open to a merger between the two in the future. However this is far off and speculative.

Another option that the market opines is on the cards is a joint venture between Tropicana and Albedo, which would eliminate any conflict of interest. Bit Tan will avoid this as investors are mindful of related party transactions that would arise from such a move.

In another development, Tropicana has sent a letter of intent to CapitaMalls Malaysia REIT management Sdn Bhd to explore the potential purchase of Tropocana’s assets, the Tropicana City Mall, and the Tropicana Office Tower. The parties are in talks at the moment and Tropicana could announce a decision as early as mid Sept 2013.

If the sale which is part of Tropicana’s de gearing exercise, actually comes through, it will be positive for the group.

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