Illustrated Example Of Sale And Leaseback-Tamaddan Berhad
Further to my earlier article on Sale & leaseback,
“Recently announced in the Malaysian Stock Exchange that:
“A Malaysian listed company, Tamadam Bhd, had on 8 June 2006 entered into a Sale and Purchase Agreement (”Agreement”) with Amanah Raya Berhad (”ARB”) for the sale of the above-mentioned Property from Tamadam to ARB for a cash consideration of RM27.9 million (”Purchase Price”).
On 8 June 2006, Tamadam and ARB had also simultaneously entered into a Lease Agreement (”LA”) pursuant to which Tamadam agrees to leaseback the Property from ARB for ten (10) years (extendable for an additional five (5) years). In addition, Tamadam will have a first right of refusal to repurchase the Property from ARB should ARB decide to sell the Property during the term of the lease.”
Some of the salient points to note are:
(a) Rationale for the proposed Sale & leaseback:
· The Proposed Sale and Leaseback was undertaken by Tamadam mainly for the purpose of realising the value of the Property which has appreciated since its initial purchase. Hence, Tamadam would be able to fully capitalise on this price increase and secure the gain of RM9.0 million from the sale. Based on the audited financial statements of the Tamadam Group for FYE 2005, the net gain per share would be RM0.18.
· whilst retaining productive use of the assets by way of the leaseback arrangement.
· the Proposed Sale and Leaseback would also generate positive cashflows for the Tamadam Group and would not have any adverse impacts on the operations of the Tamadam Group.
· furthermore, the funds raised from the sale(Rm23.9million) will be channelled back into the Group, i.e. will be utilised to fund working capital requirements and to retire loans.
· no effect on the share capital of Tamadam.
(b) the long lease period and the yield to be offered to the purchaser in a Sale & Leaseback
Append below some details of the proposed Sale & Leaseback:
Brief background:
Seller: A Malaysian listed company,Tamadan Group selling off its properties
Buyer: Amanah Raya Berhad , fund manager who is wholly owned by the Ministry of Finance
Terms & Conditions
Basis of arriving at the sale consideration for the Property
The cash sale consideration for the Proposed Sale and Leaseback of RM27.9 million was arrived at on a willing buyer-willing seller basis, after taking into consideration the market value of the Property of RM29.0 million as appraised by Jabatan Penilaian dan Perkhidmatan Harta (”JPPH”), a department in the Ministry of Finance, Malaysia, vide its valuation report dated 26 April 2006. The Purchase Price is a discount of approximately 3.8% to the value given by JPPH.
The Agreement is conditional upon the necessary approval from the Foreign Investment Committee, Tamadam shareholders’ approval; and obtaining the approval of the relevant State Authority pertaining to the transfer of Lot PT 21596 to ARB.
ARB shall pay the Purchase Price at the time and in the following manner:
(a) the earnest deposit of RM558,000 or two percent (2%) of the Purchase Price (”Earnest Money”) to ARB’s solicitors as stakeholders, which the ARB’s solicitors have received on 23 May 2006;
(b) the balance deposit of RM2,232,000 (”Balance Deposit”) or eight percent (8.0%) of the Purchase Price less half (1/2) of the arrangement fee of RM697,500 (”Arrangement Fee”) or 2.5% of the Purchase Price to the ARB’s solicitors as stakeholders upon execution of the Agreement;
(c) the redemption sum to the chargee on or before the Completion Date to redeem the said Property from the chargee and procure the Discharge Documents subject to Tamadam having delivered to the ARB or ARB’s solicitors a redemption statement cum letter of undertaking issued by the chargee and addressed to the ARB within ten (10) Business Days from the date of receipt of a written request from the ARB’s solicitors; and
(d) The balance purchase price of RM25,668,000 (”Balance Purchase Price”) less half (1/2) of the Arrangement Fee less the redemption sum and less the security deposit under the lease to the ARB’s solicitors as stakeholders within three (3) months or such extended date as mutually agreed by both parties hereto from the date of fulfilment of the Conditions Precedent.
(e) ARB’s solicitors to release the Earnest Money and the Balance Deposit and all interest earned and accrued thereon to the Tamadam upon presentation of the Discharge Documents and the Instrument of Transfer together with the Balance Purchase Price.
In the event that ARB desire to sell the Property at any time during ten (10) year term of lease (”Term”), ARB shall, before offering the said Property for sale to any other person, give to Tamadam the first right of refusal to purchase the Property;
Tamadam shall have the right to renew the lease for a further term of five (5) years from the date of expiry of the said Term provided that Tamadam shall notify ARB in writing not less than six (6) months before expiration of the said Term.
The guaranteed net yearly rate of lease rental for the tenure of the said Term of the lease shall be as follows (calculated based on the Purchase Price of the Property at RM27.9 Million) payable on monthly basis in advance:
Annual Rate Net Rental per month
Year 1 to Year 2 7.40% RM172,050
Year 3 to Year 4 7.70% RM179,025
Year 5 to Year 6 8.20% RM190,650
Year 7 to Year 8 8.60% RM199,950
Year 9 to Year 10 9.10% RM211,575
Average 8.20% RM190,650
Tamadam, as the lessee, shall bear and pay or otherwise be responsible for all costs of outgoings i.e. all services and maintenance charges (where applicable) including but not limited to, building repairs, quit rent, assessments, fire/building insurance and/or other related capital expenditure/costs payable in respect of the said Property for the whole duration of the said Term under the lease.
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June 13, 2006
Posted in: Financial Strategy, Malaysia
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