What’s Up? … Tanco

What’s Up? … dated Jan 2011

Sources say Tanco which is bogged down by a rm270 million loan it took from a unit of Lehman Brothers in 2007, may have secured a substantial reduction in its debt obligations.

In its books, Tanco has booked a sum of rm314 million under current liabilities as “deferred benefit pending outcome of litigation”. The amount is owed to Lehman Brothers Commercial Corp Asia Ltd, a unit of Lehman Brothers. It is believed that the sum owed has grown over the years due to interest cost.

However, sources say, there is an agreement in principle for Tanco – which is involved in property development and manages and own resorts – to get a substantial haircut after lengthy negotiations.

Tanco officials had not responded to queries.

Tanco’s shareholders’ funds amount to rm173 million, so a cut in its debt obligations would lighten its balance sheet significantly. 

For instance, if Tanco were to get a 50% haircut, this would mean it only has to settle some rm158 million, which should be more manageable for the company. A cut of about 10% in its debt obligations would translate to slightly less than a 10 sen increase in exceptional gain. The net tangible assets of the company would also increase. Tanco’s net tangible assets or net assets value per share stands at about 52 sen as at Sept 2010.

The caveat remains that Tanco had negative operating cash flow during the first nine months of 2010 – a deficit of rm19000 as at Sept 30, 2010. Its cash and cash equivalents were rm9.9 million.

For the nine months period, Tanco posted net loss of rm1.64 million. Revenue fell to rm11.76 million.

However, Tanco has landbank that it could monetize to help settle its outstanding debts owed to Lehman. As at Sept 30, 2010, Tanco had rm239 million worth of land held for property development. It also had receivables of rm19.72 million.

The question is, how much can Tanco realize from disposing of its assets.

Currently, its unit Tanco Resorts Bhd has eight resort properties – five in Malaysia , two in the UK and one in Australia – as well as three timeshare-based clubs and one recreation based club, all of which are owned, operated and/or managed by Tanco.

It has yet to attract any institutional shareholders. Its main shareholders include Datuk Tan Jing Nam , the group’s MD with a 26.55% stake and Datuk Neo with a 31% stake.

Accordingly, the company has also ceased accruing interest and exchange differences arising from the loan.

Tanco had also obtained an injunction to restrain Malaysian Trustees Bhd, as trustee of Lehman, from exercising any rights and/entitlements pursuing to the loan facility. Lehman, in response, appealed against this decision. The litigation is still ongoing and there has not been any development on the case to date.

One thing is for sure: Tanco will definitely get a big break in the event that Lehman agrees to give it a massive haircut for the loan.