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Saturday, September 6, 2008

Grooming TA

Datin Alicia Tiah was the epitome of happiness and confidence that morning. It did not matter too much that the global economy was rather challenging.

Datin Alicia Tiah

The MD and CEO of TA Enterprise Bhd was focused about where, and how she was going to drive the company.

The day of the interview also turned out to be her birthday and the staff has organised a birthday lunch for her, her husband Datuk Tony Tiah, 62, whose birthday is around the same time. He is also the executive chairman.

There were other reasons to celebrate. On Thursday evening, in a filing with Bursa Malaysia, the company announced the purchase of the Coast Whistler Hotel in British Columbia, Canada for RM107mil (C$33mil).

The 193-room hotel is located in an alpine skiing and mountain biking resort town about 125 km north of Vancouver. Currently undergoing renovations, the hotel is expected to be reopened in November 2009 for the Winter Olympics 2010.

The proposed cost of renovations, to be borne by TA Global Bhd, a soon-to-be listed property company on the main board, is estimated at C$30mil.

Besides the acquisition of the hotel, the company has also proposed to list its property division currently held by its subsidiary company TA Properties Sdn Bhd.

The new company, known as TA Global Bhd, will be a property counter while TA Enterprise Bhd will focus on financial services. (See side bar)

But over and above cakes and candles, hotel purchases and a flotation exercise, Alicia has found another reason to celebrate. Her son, Joo Kim, 28, joined the company about three months ago.

“I have a lot on my plate at the moment,” says Alicia, 58.

Succession planning

“I am so happy he will take over,” says the mother of three girls and two boys, Joo Kim being the third and older boy.

“I’m tied down with a lot of things and would like some help and he has the experience. He will be able to support me by way of his ideas and experience. I also want him to spearhead the financial services sector.”

Alicia is seeking universal broker (UB) status for the group and eventually, she hopes to build an investment bank (IB). Joo Kim has a masters in international business and was working as a financial adviser in Singapore prior to joining TA Enterprise.

Says Joo Kim on the proposed restructuring: “It makes a lot of sense to separate the two core businesses of the group – financial services and property development, investment and management.

“We are not saying one is better than the other. Listing the property arm will enable us to unlock shareholders’ value. To have two listed entities, both with their respective specialities, will reflect our businesses better. It will help us to put a market value to all our land and property assets.

“When we made up our minds to have this division, we also looked at things from the investor’s standpoint. When an investor considers a stock, they do so because they want exposure in a particular sector. This is where TA Global comes in. If it is financial services exposure, there is TA Enterprise. Before when an investor buys into TA Enterprise, they wanted exposure in both.

“The third reason for this restructuring has to be viewed from the management standpoint. With two separate entities, there will be greater transparency how the two entities are performing. It is no longer one business riding on the other. Separating the two will also improve execution of the respective entities that are accountable to stand alone to deliver on separate key performance indicators and strategies,” says Joo Kim.

He says TA Global is expected to be listed on Bursa’s main board by year-end. The initial public offering (IPO) involves a proposed rights issue of 860 million new shares at an issue price of 50 sen to all existing shareholders of TA Global on the basis of 10 new shares for every existing 27 shares and a proposed public issue of 350 million new shares at 50 sen. At the end of it all, there will be a total of of 1.21 billion of new shares, says Joo Kim.

TA Enterprise will then offer for sale 875 million shares of TA Global to the public and capital distribution to its existing shareholders. In the end. TA Global will have an issued and paid-up share capital of RM1.75bil made up of 3.5 billion shares at 50 sen each, says Joo Kim.

A Sept 5 report from Citi Investment Research says TA Enterprise plans to raise a total of RM612mil from the IPO proceeds and will eventually own 24% of TA Global. Tony Tiah will have a direct stake of 10.3% to 13.7% of TA Global depending on TA’s warrant conversion.

It will use a portion of the proceeds to apply for an investment banking licence and the rest for future working capital.

UB and IB

“With UB status, I can do many things, including bonds. In the meantime I do other things. After that, I would like to have an IB status. The investment bank scenario is rather crowded today but things can change any time. We have to be prepared and at the same time, it also means we have to take our financial services offshore,” Alicia says.

The group currently has TA Securities (HK) Ltd in Hong Kong. Its pre-tax profit surged 231% to HK$52mil for the year ended Jan 31, 2008, from HK$15.7 mil the previous year.

The growth was attributable to the rise in brokerage generated from trades on Hong Kong stocks coupled with the rise in interest income on margin lending and IPO financing.

“There are so many deals being signed and sealed in Hong Kong. We have not expanded that area yet. There is much we can do but I need more people to join me. I am seriously looking for talent. I am also strategising the way forward so it is very important that my son is here.

“I am tied down with having my own five-star hotel brand. I do not want to discount the financial services sector but this sector is rather lacklustre today.”

The company completed its first quarter for financial year 2009 with disappointing results. It achieved only 18% of its full year estimates, a June 23 Citi Investment report says.

Stockbroking income fell 34% quarter on quarter due to lower stock-market turnover (-20%) and decline in retail participation. Property development saw lower margins for the quarter, but Citi’s analyst expects stronger contributions in subsequent quarters owing to good progress and healthy sales in the current projects.

Stockbroking and related activities accounted for 30% of group earnings before interest and tax (EBIT) for the first quarter.

Its property development

Property development EBIT was 13% quarter on quarter. The lower margins are likely to be due to rising material costs. The Citi report says that take-up rates have improved from 50% to 65% for Idaman Villas, 60% to 72% for Damansara Idaman Phase 3 and from 80% to 88% for its KLCC high-rise condominium Idaman Residences.

Says the report: “We expect better turnover in the second half of financial year 2009. Property earnings are expected to remain strong with continued good take-up and work progress at all three ongoing projects with the Idaman brand. Over the next 12 months, TA will be launching the final phase of Damansara Idaman (27 units of bungalows), Seri Suria development (shoplots) and Bukit Bintang (service apartments).”

According to Alicia: “If the market is buoyant, the financial services sector will be good. But it is rather slow today. So property will be a major contributor this year, it will contribute about 60% to our bottomline, maybe even 65% and the rest from the financial services segment.”

“I enjoy property development because you can see the end result, the buildings, taking shape. It is a dream that eventually becomes reality. Financial services is not all that tangible by comparison. But this does not mean we are going to neglect financial services. We will not. It is just that the market is lacklustre today; when it is buoyant, the financial services sector will do well,” says Alicia.

A new line

“As for the new line we are opening – property management – there is much work has to be done there. Managing a hotel can be quite transparent. The group owns Radisson Plaza in Sydney, Australia and Terasen Centre in Vancouver, Canada.

“Although Radisson is managing the hotel for us, we are very hands-on. We will build our own hotel brand here in Kuala Lumpur, to be specific, on Nova Square between Jalan Bukit Bintang and Jalan Imbi. (See sidebar)

“Having said that, we are also open to options in countries we are familiar with such as Canada and Australia,” she says.

The purchase of the Coast Whistler Hotel will also put the group firmly into property management. This will be the group’s second property on Canadian soil. The other is office building Terasen Centre.

TA Enterprise bought the 362-room Radisson Plaza Hotel before the Sydney OIympics 2000 in the late 1990s. It has an average occupancy rate of 82% in July and a market value of A$120mil.

“We made good returns from that investment, both in terms of steady returns and also from diversification from the normal stockbroking business. It was a very good move,” she says.

Terasen Centre is fully tenanted and has an average rental rate of C$20 per sq ft. New leases are coming in at C$24 to C$26 per sq ft. That property has a market book value of C$175mil. Both the Australian and Canadian properties were bought about 10 years ago.

“Terasen Centre is strategically positioned in the golden triangle with 62-storey Shangri-la Hotel across from it, and close by is Ritz Carlton, a 60-storey building. We bought it for C$92mil and were offered C$160mil but I’m not selling. To look for a property that is so well located and one that fits our budget and corporate plan is not easy,” says Alicia.

“If we were to invest abroad, I would prefer somewhere familiar. Having said that, however, we are thinking about Vietnam, China and the US market, but we’ll see how things go. We will begin monitoring the US property market as the residential properties have declined by 40% to 50%; this represents buying opportunities.”

By The Star (by Thean Lee Cheng)

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