 CEO Tan Thiam Hee (standing) sharing what the new Board of Directors did to get SGX's approval for trading resumption. He also reported on the follow-up work by the Special Audit lawyers and consultants regarding legacy issues that led to the Group's management restructuring. Photo by Sim Kih At Cedar Strategic Holdings' AGM, shareholders expressed optimism about its new lease of life under the Board of Directors appointed in June and July last year. The property investment company has resumed trading at the end of March after being suspended for a year. |
Time & date: 9.30 am, 28 April 2016.
Venue: 55 Market Street #03-01.
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- Non-Executive Chairman Christopher Chong |
"We bought Daya Bay because we believe that the lower and upper middle classes are now beginning to seek experiences.Q: Who is helping you manage the Daya Bay holiday resort?
Christopher Chong: We felt it was inadvisable to jump into, say, hiring 100 of our own hospitality staff as it will be difficult to ensure that so many people are all of the right calibre. It would make more sense to build up our workforce over time.
This and our old-fashioned view of cashflow is why we are now using a third-party hospitality operator who pays us a fixed rental income of RMB 2,000 a month per room. The cash flow from this business model is steady.
There will be much more upside in rental income when we develop the skillset to run our holiday properties.
We are looking at hospitality investments in panda country (Sichuan), tropical paradises (Hainan and ASEAN) and destinations that fire the local imagination (Yunnan etc).
If we invest in hospitality properties elsewhere, we will need to form another hospitality management team.
The skillset needed for managing a holiday property varies with the tourism theme. For example, a modern seaside resort like Daya Bay is managed differently compared to a mountainous resort in Yunnan located in an ancient town.
Q: How strong is your guanxi in China?
Christopher Chong: Guanxi is less important when doing business in China these days compared to the past, but I like to think that for a Singapore company, we have very good guanxi there.
When I was the managing director of HSBC Securities (Singapore), the bank engaged China a lot. The first time I visited Beijing was in 1984. In those days, getting things done depended 100% on guanxi.
Non-executive Director Teo Cheng Kwee holds 500 million shares (4.82%) of Cedar Strategic. Mr Teo is the founder of SGX-listed Sapphire Corporation.
Photo by Sim Kih But guanxi doesn’t guarantee that you'll make money. It merely gives you opportunities. Guanxi cuts both ways. You might find yourself in a situation where they shove an unprofitable project to you.
I sit on the board of a significant PRC company and advise several others. So do my fellow directors Mr. Teo and Patrick Wong, who are based in Chengdu and Hong Kong.
Tan Thiam Hee: We invested in Daya Bay because this development project was about 90% completed when we went in. We did not want to invest in a greenfield project and have to deal with different parties who are difficult to manage.
The good thing about Daya Bay is this: There is little probability that any unforeseen circumstance can arise as it is already at the stage of completion and handover.
The risk of investing in greenfield projects where we have to start from scratch is higher, and we want to manage that risk.
Q: Are the interests of the 40%-owner in Daya Bay aligned with Cedar Strategic?
Tan Thiam Hee: We acquired 60% in Daya Bay for RMB 48 million (about S$10 million). Mr Luo Shandong is the beneficial owner of the Daya Bay vendor, which also owns the remaining 40%.
Our interests are aligned with Mr Luo’s. We are working to increase Daya Bay’s revenue and profitability. This will benefit both parties.
On 22 February 2016, Mr Luo subscribed for 500 million Cedar Strategic shares at 0.28 SGD cents apiece in a placement. He likes the way we handle this project. His investment shows his commitment to run with us.
Q: How are you going to pay for the Daya Bay acquisition?
Christopher Chong: We can do a rights issue or an additional placement. My preferred option, as it is fairer to all shareholders is a rights issue. Our current mandate for a rights issue size is one for one. Our current share price is 0.2 SGD cents.
Let us assume there is no change in price - rights issues are usually priced at a discount. Based on our current share capital of about 10 billion shares, a rights issue price at 0.1 SGD cents a share translates into issue proceeds of about S$10 million. A rights price of 0.15 SGD cents translates into S$15 million.
We are reasonably certain we can also get bank financing.
Q: Have you considered selling placement shares to large investors like Oei Hong Leong?
Christopher Chong: When big investors come in, they usually want to take control of the company. We have been approached by several of them. We have so far said ‘thank you, but no thank you’ to some because the proposal makes no commercial sense and to others because the price undervalues Daya Bay. We are not against the idea but please approach us with a commercially sensible deal at a price that also makes sense.
I suspect the regulators and sponsors, who have been very supportive, and many shareholders who have been very patient will be very unhappy if we merely flipped the company or Daya Bay. If we sold Daya Bay, Cedar Strategic will become a shell company, which means we will be delisted.
