YNH asset divestments

YNH Property Bhd (YNH) said this week that it is selling off its prized assets, namely the 163 Retail Park shopping centre for Rm270.50mil plus the Aeon Seri Manjung shopping centre and the freehold land it was erected on in Perak for Rm152mil.

What was surprising is that the company is selling it to a special purpose vehicle (SPV) in which the major owners of YNH are also shareholders in, which makes it a related party transaction.

Secondly, the SPV will be raising money for the acquisitions via an asset-backed medium-term notes programme.

The question is, why isn’t YNH selling its prized assets to say a third party real estate investment trust (REIT) and gaining max value for their assets? The other issue is why isn’t YNH then doing the asset-backed programme itself?

To be sure, the sale price of the assets will be determined by fair valuation methods. Also, the SPV will likely have other shareholders in it besides the majority shareholders of YNH.

The deal is beneficial for YNH because it does raise funds that will enable it to lower its borrowings and save a tonne of money on interest payments. Of the Rm422.5mil raised, Rm350mil will go for repayment of borrowings, while another Rm81.9mil for working capital. This will lower its gearing ratio to 0.37 times, compared to 0.66 times as at Dec 31, 2021.

Perhaps what is more interesting is that the sale of these assets isn’t the end of the story. It is likely that the SPV will turn into a REIT at some point in the future. If and when this happens, it is hoped that shareholders of YNH will be offered a chance to participate in the REIT.

Another positive could be this: that the asset-rich YNH could now be in a position to develop its massive landbank. The company is sitting on a vast amount of undeveloped land, in Perak and Kuala Lumpur.

It will be left to be seen how quickly it is able to do this in order to create value for its shareholders. That said, the company is loss-making, reporting a net loss of Rm7.5mil for the six months ended June 30.

That hasn’t stopped its share price from climbing some 55% year to date. It is a wonder what is driving up its share value.

Tug of war

WHEN Dagang Nexchange Bhd (Dnex) announced there is a huge snafu involving its semiconductor business and its Chinese partner, the market’s reaction was predictable: sell first and ask questions later.

Its shares plunged by a third and that sent the shares of the company to 50.5 sen from 75.5 sen previously.

Investors were wondering what is happening between Dnex and Beijing Integrated Circuit Advanced Manufacturing and Highend Equipment Equity Investment Fund Center (CGP).

Both these companies own Silterra Malaysia Sdn Bhd on a 60:40 basis. But there is a purported agreement for the issuance of Rm100mil worth of Irredeemable Convertible Preference Shares (ICPS) that is now in dispute.

According to the statement by Dnex, the company is pursuing arbitration to settle the dispute.

The situation is critical because it involves the minimum regulatory threshold of Silterra Malaysia. According to the Ministry of International Trade and Industry (Miti), Dnex needs to maintain a minimum 55% Malaysianowned stake in Silterra to continue with its manufacturing licence.

There is a grey area now over the issuance of ICPS, which if executed, would mean that CGP would own 60% of Silterra and Dnex 40%.

CGP went ahead and stamped the “agreement” pertaining to the issuance of the ICPS while Dnex is saying that only the wet copy of the agreement can be stamped and not the scanned copy which was.

The quandry both sides find themselves in is important over the continued operations and ownership of Silterra.

Should the arbitrator give the go-ahead to CGP, then the issue will be whether they are allowing something that will be in breach of Miti licensing regulations to proceed?

It is hard to fathom how that will be allowed as that would mean jeopardising the operations of Silterra.

If the monies had not been paid and received by Dnex, then it would mean in essence that the issuance of the ICPS has not been concluded.

Then a decision on whether any pre-signed agreement for the ICPS would then even be valid if that means putting at risk the operations of a valuable asset for Dnex.

The entire episode shows just how valuable Silterra has become.

In the aftermath of the Chips Act in the United States, possession of semiconductor foundries is crucial in developing microprocessors by China companies. Surely the value of such operations by Silterra would also have grown since that Act was passed.

For Malaysia, this could become a political issue but is important to hold steady the initial decision to keep Silterra in Malaysian hands when handling the behind the scenes wrangling that will surely ensue from here on.