Monday, January 14, 2013

4 possible outcomes of SC Global Development's inventory crisis


Charge payable is 8% for first year.

According to Phillip Securities, SCGD is expected to incur extension charges for its completed but unsold inventories in 2013 and 2014, largely due to slow sales in The Marq on Paterson Hill and Hilltops, as foreign developer is required to sell out the entire project 2 years after TOP is obtained for the project.

Extension fee is payable if the foreign developer requires more time to sell the units. Most listed developers such as SCGD with foreign shareholders is considered a foreign developer.

The charge payable, as a percentage of the property (land) price pro-rated to the number of units unsold, is 8% for the first year, 16% for the 2nd year and 24% for the 3rd year.

SCGD announced on 7 Jan that it had received a letter from the Singapore Land Authority stating that the Controller of Residential Property is prepared in principle to grant approval for a limited 6-month qualifying certificate extension for The Marq on Paterson Hill subject to the payment of ~S$5.5mn by 1 February 2013.

Here's more from Phillip Securities:

By privatizing SCGD, Simon Cheong probably could turn SCGD into a local-owned company, and apply to the authority for exemption from paying the extension fees. The risk remains on whether the exemption could be obtained.

There will be 4 probable outcomes at the end of this offering period:

The first is Simon Cheong successfully acquire more than 90% of the total outstanding shares, which will results in a compulsory acquisition by Simon Cheong at the price of $1.80 (i.e. downside protection to minority shareholders is $1.80). However, given that Wheelock Properties is holding stakes of ~18%, Simon is quite unlikely to achieve that in our view, unless Wheelock decided to sell to Simon at the price of $1.80 per shares.

Second scenario is the public float of SCGD shares fall below 10% in the market, which will trigger a trading suspension and SCGD could be privatized subsequently.  This scenario is possible as the public float has decreased to <16 11="11" a="a" accept="accept" also="also" as="as" be="be" believe="believe" buy="buy" case.="case." certainty="certainty" choose="choose" for="for" good="good" holding="holding" in="in" is="is" jan.="jan." liquidity="liquidity" minority="minority" no="no" not="not" o:p="o:p" of="of" offer="offer" out="out" position="position" privatized="privatized" scgd.="scgd." scgd="scgd" shareholders="shareholders" shares.="shares." shares="shares" simon="simon" that="that" the="the" there="there" this="this" to="to" trading="trading" we="we" who="who" will="will">

The third scenario is that Simon fails to secure 90% majority and the public float remains over 10%, which will see SCGD continues to be listed, and share price will likely to fall back to the pre-offer level. The shares were last traded at $1.205 prior to the offer announcement.

The last scenario is Wheelock’s stakes could be deemed as public float, which will result in higher percentage of free float in the market (~33.9% as of 11 Jan). This could happen if Wheelock applies to the SIC for their stakes to be considered as part of the public float, and is subject to the approval of SIC. In this case the public float is less likely to fall below 10% and SCGD will continue to be listed, which will see share price fall back to the pre-offer level. We think this scenario is less likely to take place as Wheelock will see the price of its equity investment falls.


Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
Email: marshe_inc@yahoo.com.sg
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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