CEO Morning Brief

BDO Tells Tropicana's Minority Shareholders to Vote in Favour of RM180m Share Settlement

Publish date: Fri, 09 Jun 2023, 08:51 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (June 8): Minority shareholders of Tropicana Corp Bhd are advised to vote in favour of the proposed capitalisation involving a share settlement of RM180 million it owes to founder and group executive vice-chairman Tan Sri Tan Chee Sing in the upcoming extraordinary general meeting.

In an independent advice circular to Tropicana’s shareholders on Thursday (June 8), independent adviser BDO Capital Consultants Sdn Bhd opined that the proposed capitalisation is “fair and reasonable and not detrimental”.

Tan has a direct 20.56% stake comprising 435.96 million shares in Tropicana, and an indirect 32.57% comprising 687.9 million shares. He also indirectly holds 302.55 million irredeemable convertible preference shares (ICPS) in Tropicana via DIT Sdn Bhd and Dasen Resources Sdn Bhd.

Upon completion of the share settlement, Tan will control a direct 19.3% stake and an indirect 36.56% stake in Tropicana.

If all of Tropicana's outstanding ICPS were converted after the completion of the share settlement, Tan will hold a direct 17.02% stake and an indirect 40.33% stake in Tropicana.

In view of the weak financial performance of Tropicana in 2021 and 2022, BDO said the proposed capitalisation represents an opportunity for the group to expediently settle a large part of the advances amounting to RM180 million via the issuance of settlement shares, without involving cash outflow from the group.

It also said the proposed capitalisation will also enable the group to reduce its liabilities while maintaining its cash reserves during a challenging business environment period as this will allow the group to utilise its cash reserve to support the working capital requirements for various property development projects and repayment for the sukuk wakalah programme.

Notwithstanding that the proposed capitalisation will result in a decrease in the group’s proforma net asset per share, it is expected to strengthen the financial position of the group as its proforma net asset will increase and proforma gearing will decrease upon completion of the exercise.

“Based on the above, we are of the view that the rationale of the proposed capitalisation is reasonable,” said BDO.

BDO said the deal is fair after taking into consideration that the issue price is equal to the five-day volume-weighted average price (VWAP) up to the last practicable date (LPD).

“The issue price represents an implied P/B [price-to-book] multiple above the average P/B multiple of the comparable companies, BDO noted.

At the time of writing, shares in Tropicana dropped two sen or 1.49% to RM1.32, giving the group a market capitalisation of RM2.84 billion.

Read also:
Tropicana to issue new shares to founder-cum-vice-chairman to settle RM180m debt

Source: TheEdge - 9 Jun 2023

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