Wednesday, June 20, 2007

Olympia & Mycom

MARC has assigned a BB- rating to OlympiaIndustries' (OIB) RM137.12 million redeemable unsecured loan stocks(RULS). The rating reflects the risks associated with the implementation of the group's restructuring scheme. OIB is involved in property investment, construction, stock broking andlotteries/number forecast.

OIB's lotteries/number forecast business resumed operations at the end of 2001 upon renewal of its licence. Its stock broking arm subsidiary, Jupiter Securities Sdn Bhd (JSSB), has been trading with restrictions since October 1998. The restructuring scheme involves, among others, a capital reduction, recapitalisation via a rights and special issue exercise, and a debtrestructuring. The debt restructuring, in turn, involves the issuance of the RULS andother debt instruments as settlement of OIB's debt obligations. The restructuring scheme also involved the divestment of OIB'sproperty-related companies to Mycom as several of OIB's subsidiariesholding land bank will be disposed off to Mycom.

OIB's property development projects namely Bandar Sri Duta (BSD) andK-Residence will be financed from the proceeds of the restructuring scheme. BSD, the 42:58 joint venture mixed-development project with Mycom, is located near the upmarket area of Sri Hartamas and will target the higher end of the residential market. The K-Residence development, on the other hand, is located in thevicinity of the KLCC, and comprises a condominium tower and a service apartment tower.

MARC assigned a BB- rating to Mycom's RM60.32m RULS. The rating category reflects significant uncertainties that could affect the ability of the issuer to adequately service debt obligations. Mycom is an investment holding company with subsidiaries engaged in property development and investment, plantations, manufacturing and plywood. The management has proposed to acquire property based companies from its related company, Olympia Industries Berhad in order to increase its project portfolio and landbank for future developments. The Group may eventually dispose certain non-core assets under its plantations and plywood businesses in order to supplement its cash coffers. Mycom’s property developments, Bandar Sri Duta (BSD) and the Duta Grand Hotels (DGH) projects will be financed from the proceeds of the restructuring scheme. The Group has recorded consecutive losses since 1998 resulting in negative shareholders funds of RM500.4 million as at FY2006. The Group’s past net cash flow position has been tight, plagued by the continued losses.

In May 2007, Pengurusan Danaharta Nasional Bhd has emerged as a substantial shareholder of Olympia Industries Bhd with 101.16 million shares or 13.85%. Olympia also saw the cessation of Tan Sri Lim Kok Thay as a substantial shareholder pursuant to the company's capital reduction exercise and rights issue. Lim is also no longer a substantial shareholder of Mycom Bhd as at April 27. Koperasi Polis DiRaja Malaysia Bhd too ceased to be a Mycom substantial shareholder the same day.

To revive both companies, the Yap family injected 73.4 acres of prime land. It looks like Mycom has the better hand of the deal with the prime landbanks. Jupiter Securities will not be able to have the capital to compete with the brokers in town and will die a natural death. Under the revamp, Mycom's debt of RM1.13 billion is restructured with the issuance of new shares and other debt instruments worth about RM790.6 million. The cash repayment portion is RM230.4 million. As for Olympia, its debts of RM1.68 billion will be converted into new term loans, while new shares and debt instruments worth about RM1.18 billion will be issued. The cash repayment portion is RM237 million.

The present run up looks like an exercise to offload / profit from the recent warrants and new shares subscription. Back in 2003 a circular by Mycom indicated that post-restructuring the diluted NTA will be between 81-85 sen. Since 2003, the company has had further losses, so one can do a guesstimate that the NTA should be around 50-60 sen now on the safe side. Mycom will rely on the development of the Mont'Kiara land to generate cash flow for the group. The development of the entire 73.44 acres of Mont'Kiara land will be done jointly by Mycom and Olympia. However, 58% of the share of the profit will go to Mycom as it will own a larger portion of the land. Stage one of the Mont'Kiara development will take 10 years, covering an area of 50.93 acres, with a total gross development value of RM2.9 billion. Mycom's 58% share of the profit is expected to be more than RM348 million over the 10 years from stage one. Other than the Mont'Kiara land, Mycom will also resume works on the Duta Grand Hyatt project situated at the corner of Jalan Sultan Ismail and Jalan Ampang. The project, in which Mycom owns a 51% stake, has a GDV of RM740 million. Other than a five-star hotel, there are plans to build serviced apartments, retail units and other components on the same site. Mycom also owns a small piece of land measuring some 20,000 sq ft next to the Ampang LRT station, but there are no concrete development plans yet. In terms of project financing, the development of Mont'Kiara stage one and the Duta Grand Hyatt project will be funded by part of the proceeds raised from the rights issue as well as a special issue, which together may bring in RM168.5 million. Still does not look to be sufficient enough to sustain these projects. The saving grace is that the projects are in very desirable and prime locations, and property sentiment for the high end has never been better since 1997.

Olympia's diluted NTA per share is estimated at 80 sen or lower. The gaming division posted revenues of RM103.4 million for the financial year ended June 30, 2005, and RM117.3 million for FY2006. But the profit from the division was only RM4.4 million and RM5.1 million, respectively, for FY2005 and FY2006. The payout ratios in these instances were above 90%, which are much higher than the industry average of about 60%. The broking business is doomed to fail. Hence prospects for Olympia is bleaker.

Mycom is the better bet if you must have a bet, but the run up looks for like a push following the new shares subscription and issuance of free warrants. There are certainly much better investing options around town. Though some of the assets are prime and desirable. The management track record leaves a sour taste, and shouldn't that be the defining point of investing? Lim Kok Thay's "no thanks" should be a big indicator as he would really have wanted to get hold of the prime landbank and hotel.

1 comment:

solomon said...

I buy yr idea. Investors have to be cautioned on the trading of these stocks.

Nonetheless, nowadays, it seemed like someone is opening the floodgate to have counters to hit year high, one after another.

If restrucutring play is on, I think Pilecon is worth to be relook. Mainly of the water business they are having. The Southener who drink water, why not give it a thought??