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Further Insights into the Transcu RTO of Straits Construction
Firstly from the Transcu perspective, the transaction when completed will ensure that it is taken of SGX’s watchlist. One of the conditions of the reverse acquisition is that the Straits Construction Group would report a net profit after tax of at least $42 million for FY2013.
Also, Straits Construction Group is an A1 grade contractor in Singapore. This means that it can tender for public sector projects of any size. Its construction track record includes public HDB housing, residential projects as well as commercial developments. It has completed close to 100 projects to date. This includes Casa Clementi, Singapore’s largest HDB project, which comprised of 2,234 units in 10 blocks. 4 of these blocks were 40 storey blocks. Straits Construction received HDB’s Distinguished Construction Award for this project.
Transcu had also disposed of two subsidiaries TTI Ellebeau Inc and Dharma Therapeutics Inc for token consideration. This was its biotech business which would have required millions of R&D dollars every year. Management thus decided to cut their losses and sell the two subsidiaries. They were in fact loss making and had negative asset value. Their disposal is expected to have a positive effect on Transcu’s net asset value and earnings per share.
The remaining business in Transcu is its cosmetics business. This has been identified by Management as still having potential. The focus is on how to expand the business to markets outside of Japan where revenue and profitability have been decreasing. This follows Transcu’s acquisition of a 51% stake in Mojo Films Sdn Bhd. Mojo Films is a producer of commercials. Its advertising and promotional capabilities will aid Transcu in expanding its cosmetics business overseas.
From Straits Construction’s perspective, it is an established business with sizeable revenue and profits. Its listing is a natural outcome of a progressive and professionally run company. On this, Straits Construction has explored both the IPO route and the RTO route. Both have their advantages and disadvantages. However Management chose the RTO route as it represented less risk than an IPO. This was because the RTO route had less uncertainty and would not be delayed or affected by any global negative events. The listing also provides Straits Construction with an impetus to grow. It has adopted a progressive approach to the construction industry by placing emphasis on innovation and innovative methods. This in turn enhances its productivity.
Straits Construction also has joint venture in China to develop a 2 sqkm parcel of land. The land is zoned for mixed development include residential apartments, a golf and country club, commercial areas as well as a 5 star hotel. The first phase of the project which consist of 1,000 residential apartments was completed in 4Q 2013.
GET TO THE POINT : The RTO looks like a win-win situation for both Transcu and Straits Construction. Once the various approvals have been successfully negotiated, the transaction would certainly create a stronger Transcu.
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