Successful backdoor listing for Pacific Star Development

/ The Edge Property |

February 17, 2017 10:00 AM SGT

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The former Singapore-listed LH Group was renamed Pacific Star Development on Feb 8 after it received shareholders’ approval for the $140 million reverse takeover (RTO) by the latter. The company started trading on the Singapore Exchange on Feb 16.

Established more than a decade ago, Pacific Star Development was a property investment management company focused on investing in and managing prime development projects in the Asean region. The two projects currently under development are Puteri Cove Residences in Iskandar Malaysia and The Posh Twelve in Tiwanon, Bangkok.

Glen Chan, CEO and managing director of the newly listed Pacific Star Development says the group will continue to focus on development projects in Asean to diversify their risks and revenue base.

According to Chan, an RTO is a process with more certainty compared with an initial public offering (IPO). Unlike an IPO, an RTO involves the acquisition of a listed company, often one that has no significant business operations or one whose existing business is on the decline.

Pacific Star Development first entered into a term sheet with LH Group last March. LH Group, a specialist contractor of aluminium works and vehicle parts, was listed on the Mainboard of SGX in 1994. Pacific Star Development will, however, be listed on Catalist instead of the Mainboard.

In its FY2016 results, LH Group announced that revenue was down 34.5% y-o-y. The company also reported a net loss for the second consecutive year. “As the business is not doing well and recording losses, we thought it would be ideal for us to do an RTO via [LH Group], as it’s also a construction company and a property-related business,” says Chan.

Chan says Pacific Star Development will continue to focus on development projects in Asean to ‘diversify our revenue base and our risks’

Key investors

As part of the RTO, LH Group raised $8.5 million through the conditional placement of 11.1 million new shares. The amount was 41.7% more than its minimum placement target of $6 million. The placement was said to have been “well supported” by Koh Brothers Group Limited (through its wholly-owned subsidiary); prominent businessmen affiliated with the Tang Group of Companies, owner and operator of the Dorsett Hospitality chain; Home Fix DIY; and Food Empire Holdings Limited. Together, they represent an aggregate of 5.825 million shares (57.5%) of the total applications received.

Part of the acquisition was made in cash ($16 million) and the issue of 132.5 million new shares at 80 cents each. The balance $18 million will be paid in cash and/or issuance of new shares, according to a Feb 15 announcement. The total issued share capital has increased to 158.43 million, including the 11 million placement shares and 132.5 million consideration shares.

Substantial shareholders

The company also announced the successful acquisition of the entire share capital of the former Pacific Star Development Pte Ltd. Based on the enlarged share capital, Ho Lee Group’s stake will be diluted. One of the substantial shareholders of Pacific Star Development is Chuan Hup Holdings, which now owns 37.34% of the shares via its wholly-owned subsidiary, CH Biovest.

Chuan Hup is a Singapore-listed investment holding company with investments in electronics manufacturing services, offshore support services to the oil and gas industry as well as property development. Last May, Chuan Hup’s wholly-owned subsidiary, CH Biovest, entered into a loan agreement to lend PSD Holdings US$7 million ($10 million). Prior to that, it had granted PSD Holdings a US$10 million loan on April 24 2015. PSD Holdings was an investment holding company and sole shareholder of Pacific Star Development.

In a supplementary announcement on Nov 30 last year, Chuan Hup said CH Biovest would novate the two loan agreements with PSD Holdings, and Major Star Holdings (which owns a 50% stake in PSD Holdings) would now be the borrower under the loan agreements. Upon completion of the sale and transfer of the shares in PSD Singapore Pte Ltd (formerly known as Pacific Star Development Pte Ltd) to LH Group, 59.1 million ordinary shares in the capital of LH Group were allotted to CH Biovest, which translated into a 37.34% stake in the new shares of Pacific Star Development.

The other substantial shareholder of Pacific Star Development post-listing comprises Glaxier City, in which Glen Chan has a 20% stake, and Double Blessing, a company wholly-owned by Chan. These two parties together hold 48.4 million shares, which works to a stake of 30.55% of the enlarged share capital owned by Chan, according to an announcement on Feb 16.

Chan joined Pacific Star group of companies in March 2003 from CBRE, where he was a member of the CBRE Asia board of directors. He was appointed senior vice-president in 2004 to drive its real estate investment and management business. A year later, he was promoted to president of Pacific Star Development, and now assumes the roles of CEO and managing director of the new listed entity.

Spinning off development

Historically, Pacific Star Development’s indirect shareholder Pacific Star Holdings is involved in a wide range of businesses, including fund management, investment advisory services and asset management. “Development was just one of the subsidiaries and has now been spun off into a separate listed platform,” says Chan.

He was involved in all the major investment and development projects at Pacific Star Development from the start. In June 2005, for instance, the company partnered Kuwait Finance House, a Shariah-compliant financial institution in the Middle East, to launch the US$600 million Baitak Asian Real Estate Fund in Malaysia.

In January 2006, on behalf of the fund, Pacific Star Development invested US$300 million in Pavilion, a prime mixed-use mega development comprising a retail mall, two luxury residential towers, an office building and a hotel in Kuala Lumpur. The mall opened in March 2008.

Pacific Star Development also launched the US$650 million Asian Real Estate Prime Development Fund in December 2007. The closed-end real estate development fund is invested in prime projects in key gateway cities in China, Hong Kong, Macau, Japan, South Korea, Thailand, Malaysia and Singapore.

Through the fund, the group also invested in two freehold prime residential development sites in Bangkok, called Rhythm Ratchada and The Address Sathorn, through joint ventures with Asian Property Development Co, a residential property developer in Bangkok that is listed on the Stock Exchange of Thailand. Both projects have since been completed and fully sold.

On behalf of Asia Real Estate Prime Development Fund, Pacific Star Development acquired in June 2008 half of the apartments in Panorama, a prime residential project less than a five-minute walk from the landmark Petronas Twin Towers and Kuala Lumpur City Centre complex.

Leveraging on its track record, Pacific Star Development began to position itself as a “premier developer” of luxury mixed-use projects in Asean in 2010. PSD Holdings was incorporated in July 2010 as a 50:50 joint venture between Pacific Star Holdings and Glaxier City. A month later, Pacific Star Holdings’ wholly-owned stakes in Pacific Star Development were transferred to PSD Holdings.

In 2011/12, Pacific Star Development ceased its real estate investment management and fund management businesses with the expiry of the Baitak Asian Real Estate Fund and the Asia Real Estate Prime Development Fund.

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Site acquisitions

In May 2012, Pacific Star Development purchased a prime freehold waterfront site measuring 339,817 sq ft in Puteri Harbour, Nusajaya in Iskandar Malaysia. The group is in the midst of developing the site into a luxury waterfront mixed-use project called Puteri Cove Residences, which has three 32-storey tower blocks: The first two comprise 658 luxury apartments and the third, luxury serviced suites managed by Pan Pacific Hotels & Resorts. There are also three-storey SOHO units, and a two-storey lifestyle retail centre with 79 commercial units.

Since its launch in November 2013, 63% of the apartments in the first two towers have been sold at an average of $1,300 to $1,400 psf, says Chan.

Buyers at Puteri Cove Residences are foreigners from 28 countries, he adds. As the first two towers are expected to be completed by year-end, the company is continuing to embark on “an aggressive overseas sales campaign” in China, Japan and South Korea to market the project.

Pacific Star Development will hold on to the strata retail units in the retail podium for now. The plan is to lease the units to supermarkets, specialty grocers and F&B outlets for the convenience of future residents, and to create a vibrant community.

As for the second development project, The Posh Twelve in Bangkok, Pacific Star Development had purchased the freehold site of 80,126 sq ft in September 2014 through its joint venture company Kanokkorn Pattana Co. Ltd. The site can be developed into a mixed-use complex with 1,373 apartments in 39- and 45-storey blocks, as well as seven commercial units housing cafés, restaurants and a convenience store. The project is also located within walking distance of the Ministry of Public Health MRT station on the Purple Line.

Chan intends to launch the project in April. As the property is targeted at middle-income homebuyers, units will be priced from THB80,000 ($3,242) to THB90,000 psm, which is less than a third of the luxury apartments in the prime districts of Bangkok, which are about THB300,000 psm.

Artist’s impression of a three-bedroom waterfront apartment at Puteri Cove Residences

Source: Pacific Star Development

Focus on three segments

Pacific Star Development will continue to focus on development projects in Asean to “diversify our revenue base and our risks”, says Chan. Besides Kuala Lumpur and Bangkok, the group is also evaluating development opportunities in Jakarta.

One of the three segments that the group wants to specialise in is mixed-use projects with branded residences in prime locations, like what it has done in Kuala Lumpur, Bangkok and Iskandar Malaysia.

Posh Twelve in Bangkok will be launched in April

Source: Pacific Star Development

The group also sees opportunities in resort hotel and villa developments in resort islands such as Bali, Langkawi, Phuket and Phu Quoc.

A third segment it intends to enter is resort retirement communities for the affluent, which will offer medical facilities as well as recreational amenities such as golf courses. “Malaysia and Thailand are the best places in Asean for the development of retirement communities, as land cost is relatively low and because of the availability of skilled and semiskilled staff,” says Chan.

This article is an updated version of the one that appeared in The Edge Property Pullout, Issue 767 (Feb 20, 2017) of The Edge Singapore.

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