Chip Eng Seng Corporation Ltd - MANAGEMENT REPLY: Did it sell prime properties to its directors at a discount?

16/10/2013 – Chip Eng Seng Corporation has agreed to sell three retail units at its newly-launched commercial project, Junction Nine, to three of its directors.

Junction Nine - a part of the new mixed development at Yishun Ring Road / Yishun Avenue 9 - is being developed by Chip Eng Seng Corp's wholly-owned subsidiary CEL-Yishun (Commercial) Pte Ltd.

Nine Residences - the residential part of the mixed development - is being developed by Chip Eng Seng Corp's other wholly-owned subsidiary CEL-Yishun (Residential) Pte Ltd (refer page 124).

The mixed development project is located near Yishun MRT station and the North Point Shopping Mall.

According to the announcement on October 10, the company sold unit #01-01, at Junction Nine, to Mr Lim Tiam Seng - the executive chairman - and/or his spouse, Mdm Kwek Lee Keow.

Mr Lim and/or his spouse will pay S$4,747,000, at S$4,200/sq ft, for it.

That means the area of unit #01-01 is about 1,130 sq ft.

Chip Eng Seng Corp has also agreed to sell unit #02-28 to Mr Chia Lee Meng Raymond – an executive deputy chairman and the Group CEO - and/or his spouse, Ms Lim Sock Joo.

Ms Lim is the daughter of company's executive chairman Mr Lim Tiam Seng (refer page 28 of 2012 annual report).

Consequently, Mr Chia Lee Meng Raymond is the son-in-law of Mr Lim.

Coming back to the October 10 announcement, Mr Chia and/or his spouse will pay S$901,000, at S$3,100/sq ft, for unit #02-28.

That works out to be an area of about 290 sq ft.

Finally, moving on to the third unit, Mr Hoon Tai Meng – an executive director – will pay S$1,350,000 for unit #02-16, at S$3,300/sq ft.

That means unit #02-16 is spread over an area of about 409 sq ft.

Chip Eng Seng Corp says the units were sold to its directors at the same terms as to third party buyers.

It adds that no discount or incentive was given to the directors.

The Audit Committee of the company is satisfied with the prices and terms of the transactions.

The Audit Committtee and the Board of Directors of Chip Eng Seng Corp don't find the terms of the transactions to be prejudicial to the interests of the company and its minority shareholders.

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Question

1. Did it really not sell the units to its directors at a discount?

CY Lau - Marketing Director at Huttons Asia Pte Ltd - on his website says Junction Nine is a two-storey commercial development.

The first storey units are available at a price of S$4,500-S$5,500 per sq ft, whereas the units on the second storey are priced at S$3,000-S$4,500 per sq ft.

Now let us go back to the October 10 announcement of Chip Eng Seng Corp.

Mr Lim, the executive chairman, was allotted a unit on the first storey at S$4,200 per sq ft.

Now that's about 6.5% less than the base price of S$4,500 per sq ft, as indicated on the consultant's website.

Mr Chia, an executive deputy chairman and the group CEO, and Mr Hoon, an executive director, were allotted units on the second storey for S$3,100 and S$3,300 per sq ft, respectively.

That's towards the lower end of the price band of S$3,000-S$4,500 per sq ft, as per CY Lau's website.

The psf purchase price of Mr Chia and Mr Hoon falls within the indicative price band for the second storey of Junction Nine.

But that still doesn't rule out the possibility that they received a discount.

Here's why:

(Total:3 questions)

Management ReplyFirst of all, the price ranges of $4,500-$5,500 psf and $3,000-$4,500 psf for 1st and 2nd levels respectively quoted in your email are only indicative prices provided to prospective customers before official launch of Junction Nine. They are quoted by our marketing agents to evaluate the market response before we determined the final selling prices on official launch.

Regarding the unit purchased by our Executive Chairman (Mr Lim), we wish to clarify that there are only 2 restaurants on Level 1 which are above 1,000 sf. The bigger unit was sold to Mr Lim (at $4,200 psf) who paid the highest in terms of absolute quantum for units at Level 1. The other unit above 1,000 sf was sold at $2,950 psf. In addition, there was this restaurant unit which is located behind Mr Lim’s unit with about half the size of Mr Lim’s unit and 2 entrances with one of the entrances opening to the linkway to the HDB estate, was also sold at a lower price of $3,800 psf. Further, when come to pricing Mr Lim’s unit, we also noted the unfavourable layout with 2 columns within the unit.

As regards the unit sold to Mr Chia, 6 other adjacent units within the same location are also sold at the same price at $3,100 psf. A smaller unit opposite to Mr Hoon’s unit, which also has double frontage, was also sold at $3,300 psf.

We have not given our Directors any favourable terms than the public. All units are priced according to their attributes and market value.

We thank the management for the replies.

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