Interesting Insights into the CHC-Suntec Deal: Lessons from an Investment Banker

[elephanto]

TAKEN FROM ASIAONE FORUM:-
This poster 90039003 has put up some very different & very interesting commentary on the recent CHC-Suntec Deal, beyond the usual rant about Kong Hee, his wife & their Prosperity Gospel.

I find his revelation from an investment banker's perspective very educational & thought of sharing it with forummers here:-

From 90039003's point of view, by signing the Nn-Disclosure Agreement & agreeing to financial penalties, CHC has been taken advantage of by the Sellers of the 'minority stake' of the Harmony Fund ( a group of private investors believed to include the legacy Hong Kong businessmen who originally owned Suntec) - despite their Godly anointing & Kong's business acumen.

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selected E X C E R P T S :-

3-04-2010, 04:28 PM
WHY NDA (Non-Disclosure Agreement)??

Unless the church clarifies, speculations of wrong doing will be on CHC shoulders.

Like Simon Teoh, I have 30 years experience in M&A work involving properties.
I have the hunch that the NDA actually protects Suntec owners not CHC. If there was no huge publicity to raise the issue as a $310m aquistion and "major ownership", no one would have noticed a simple rental deal.

If you read my thread, my concluding opinion is that City Harvest may have a sweet deal from Suntec.
This is based on the info available publicly, and the belief that CHC has accountants who can compare$ what they would have spent$ at Expo and what they would have spent at Suntec.

You dont need a wizard to see which number is bigger because this is a "fixed use" space and no upside on property value. My motivation is clear,
I am not running down the Church's decision to rent the suntec space.
This deal benefit the principal owner of Harmony fund and all of us in the real estate circle knows who he is.

Let me narrate a story of a property deal in USA.

A state built spent US$300m to build a convention hall to serve the Tourism industry. This will benefit the hotels, the agents, and all tourist merchants.
Now the state called for a tender to lease-own the entire facility for 99 years.

The condtion is that this place should be operated only for xwz usage so that the city hotels, tourist merchants can enjoy the benefits of out of state guest attending the conventions and trade shows. It cannot be strata titled or cannot sublet for exclusive use to anyone.

This man Mr. X won the tender with a bid of only US$35m for a US$300m property. After 5 years, Mr.X cannot break even because he cannot keep up with the high maintenance and the high cost of promoting the space.

Then Mr. "C" comes along first renting it occasionally. Mr. X realise that Mr. "C" is putting good money weekly into another facility and called Mr. "C" for a meeting.

To shorten, I write on a dialogue format:
Mr. X: Mr. "C", I know how much you are paying at that facility. I can offer a better price.
Mr. C: wow good, can I buy it becasue I need it every week for exclusive use and prepared to pay.
Mr. X: Oh I cannot sell it but you can rent it and I can assure that you have exclusive use of the place every week except for state functions (about 5 times a year)
Mr. C: That is good for us - but must have exclusive use OK.
Mr. X: One problem, I can give you exclusive use but you have to take my word for it.
Mr. C: no way!, what happens if u kick me out after 10 years.
Mr. X: OK we sign this agreement and a NDA for 2 years so nobody knows.
So Mr. "X" has benefited from the state.
Why 2 years?
Can talk later about why 2 years.

Rental deals with more than a certain number of years must be lodged.
To circumvent this, it is structured along 5+5+5..... with tenant option to renew.
With this Mr. "X" has a problem that tenant can pull out after 5 years.
To discourage that Mr. "X" insist that Mr. "C" spend huge amount in renovation etc etc.

Now listen carefully CHC supporters. It is becasue of the uncommon NDA for a simple rental deal that has created all this "possibilties" of concealing info.
Why is there a need for NDA when the deal has already be excecuted!

If the deal is similar with the above US state convention Hall deal, I have no doubt that $$wise, the deal may be sweet for CHC, or else why you go as far as Yoking with the world. (careful here, I did not say why partner the world)

Let CHC now talk to Suntec to remove the NDA, so that the church can show their contributors that indeed they have nothing to hide and no parties recieves any benefit.

1. Mind you, I was talking about a US case. I just hope this singapore CHC-Suntec case is different.
2. Mr. "X" in US benefited from the state and the sufferers are the hotels, the tourist merchants.
3. "if one knows" ... maybe Mr. C doesn't know. I do not think there is criminal intent here but very high contingent liabilty, (if it is similar)

You see the other suntec Rock sits on a space WITHOUT any constraints.
After looking at the accounts and the press release, I have a hunch on why the NDA is for 2 years.
If CHC appoints me as advisor, go ahead and use the space on 5+5+5+5+5 as long as there are no cheaper place BUT DONT commit high fixtures ($xxxMillions) into the building that is not yours.

 

[elephanto]

Let me explain:
For a "specific use property" like a convention hall, the most accurate valuation of a property is based on yield as there are NO "upside". It is like agriculture land vs commercial land.

So it can be accepted that REIT transaction value of $125 million (not $240m) for the whole complex is correct based on yield.

$125million is the true value as it is an actual transaction.
The $240m is not a transacted price and the basis of valueing that number is to justify the $125million.

Combine with the fact that many of the parties involved are "related" as they have JVs in different projects, the REIT (who is a listed entity) who is the buyer must be seen to recieve a reasonable deal. That is where the "$240m" valuation and the timing of the valuation (at its highest point)

Up to now, if you want to have a huge meeting in town, Suntec convention will name the price not the client.
Even at that high rentals that they charge, the REIT still values the ENTIRE complex at $125million (20% at $25m) Gentlemen, this $125m valuation is for the entire complex is based on yield PreApril2010, not the 6th or 7th floor.

Many buyers whom I have handled would not pay more than $100m for the entire complex. They walked away.

Why? If REIT values it at $125m PREAPRIL 2010, Post April 2010 will be at least half the value.
All the big meetings and exhibitions has been moved to Sands Convention Centre.
Even the ones that stayed on pays half the price.

Now why can Sands charge a more attarctive rate than Suntec?
Simple, they will recover then through the roullete and black jack tables.

BUT wait a minute, Suntec can recover by higher rentals at the mall... not correct, the mall and the convention has been splited already years back.

Many may asked how come such a big complex can worth so little - it is because there are obligations to operate it as a convention centre not anything else.

This is a liability unless they can find a way to rope in a rich user of the sapce who needs it. The problem is that the user of the space needs guarantee that they can use the space contracted on a long term basis. Throw in that the user is a church futher complicates the matter.

This whole valuation of suntec reminds me of a converstion with a taxi driver. He said Genting shares defintlely worth more than the 70cts that was trading at that time. When I explained that the genting (singapore) company has nothing to do with the Genting malaysia company, he was shocked!

Ronald Wong has said that the church will reveal the details soon. Let's wait. It has been more than 3 weeks but give them time, there are mines in the field which they need lots of advisors.

My advise to CHC, sign a long term rental deal with them and stay away from the shares of the convention centre. There are "contingent" liabilities which I can explain
later.

 

[elephanto]

I guess $310m number is raised by Suntec side.
They are very shrewd property owners which is why they are very successful.

Now theoretically speaking, there is only one way you can get "exclusive" or "controlled" use of place without being the owner, - you control the management.

If space user have "trusted arrangement" with management, then there is no need to sign on an exclusive use and as such management seems to be complying to the land owner's original condition of lease.

Suntec will not yield the management till the complete $310m is handed over, but CHC do not have the $310m now.
I guess CHC believes that they can raise the money in 2 years, after that, just let the agreement laspe.
I am not saying that the above is reality but most likely.

Remember the words - Technically, we own the place. We have exclusive use. We will spend big millions to renovate it. These words are very telling.
Suntec immediately reacted in the papers that CHC stake is "not big". It was then clarified by CHC that the "signifcant" stake is not correct but minor.

Perhaps Suntec is in the process of applying to URA to have 2 floors released to be rented out on a permanent basis. (we dont know). If approved, there will probably be a charge for the change of use.

Anyway my gut feel is that this deal will be aborted.

5 Apr 2010

Let's leave all the character assassination aside and examine the facts.

We have two parties here, one a Christian Group(the buyer) and the other a group(the seller) with unknown faith.
They entered into an agreement where the Christian group intends to fork out $310m for a specific use facility.

Nothing absurd so far but what happens is that the seller wants the deal to be kept a "secret" for 2 years and the buyer being ignorant, says yes and SIGNED!
Not only that, they agree to "financial penalties" for those who reveal the actual details of the deal.

Why is it absurd?

Because the buyer need to raise the $310m from familiy members.
How can you get money from family members without telling them what the money is for buying or renting of building or at least broad deal structure.
How can you sign an agreement that you cannot fulfill knowing that you need financing from 30,000 members!

At least sign an NDA agreement allowing you to tell your members the broad details

The man who recommended the signing of the NDA must answer to the 30,000 members and the senior pastor himself.

It is like buying a property but you cannot show the title deeds to your financer because of NDA.

In most cases NDA is requested by the buyer so that the seller cannot use the buyer interest to get other higher bids.
In this strange case it is requested by the seller and the buyer AGREED with penalties!???1???

In normal MA work, the buyer is in control.
You tell the seller - you dont tell people I am buying and you cannot use my interest to sought for other buyers.

The second absurdity is this:
Buyer and seller signs NDA not to reveal the actual details. Two key content - "the exclusive use" and the "significant stake".
Buyer in a hurry said the wrong things - we have exclusive use (which is not in the agreement) and we have "significant stake" (which is not correct).

Now listen, the SELLER not buyer is the one who revealed the details of the agreement revealing that the holdings is "poo ta" not big, and buyer do not have exclusive use.

Now my question is this - who is revealing the true details of the deal, the buyer or the seller.
The seller has the cheek to reprimand the buyer publicly and threaten financial penalties to the poor buyer and force the buyer to reveal the correct details of non-exclusive use and "minor stake"

Now let's put some common sense here,
WHO? has actually revealed the actual deal? the buyer or the seller.
Who is the tyrant here?
Well, seller can blame buyer, but buyer has no choice but to announce it to the family members that will be contributing to the $310m. In fact what the family head revealed is not in the agreement - so where is the breach?

CHC, have the courage and tell the seller. I pay $310m, and as such I can tell my family members as long there is no malice.
If you dont like it go find another buyer! Coughing out $310m is no small money.
Yet the buyer has to take the nonsense and obediently submit to the legal threats of the seller.

The one negotiating this deal should be investigated

 

[elephanto]

The content of the notice (link to pdf document provided below) was read out by Kong Hee to the congregation who attended the Easter services conducted at the Jurong West church premise as well as the Singapore Expo on 2 - 4 April 2010:

ABOUT THE NON-DISCLOSURE AGREEMENT

CHC signed a Share Sale Agreement, Non-Disclosure Agreements and a Deed of Accession and Ratification, all of which were done at arm’s length with the Vendors, and with reputable law firm Rajah & Tann LLP representing CHC’s interests. The Vendors required CHC to sign Non-Disclosure Agreements and the Deed of Accession and Ratification, which made us party to the initial Shareholders Agreement. The Shareholders Agreement required CHC to keep confidential all matters and details relating to the transaction, including the share price and the percentage of shares acquired.

However, under those Non-Disclosure Agreements, CHC was entitled to, and did, disclose all material details of the transaction to the relevant authorities (being the COC and the Urban Redevelopment Authority (“URA”)) as requested.

In March, when the Board sought to give its members some information pertaining to the transaction, the other members
of the consortium did not appear pleased as they felt CHC was in breach of its obligation of confidentiality. On 1 April 2010, the Board received a letter from the solicitors acting for various other shareholders in the consortium, reminding CHC of its obligations of confidentiality and obliging us to adhere to them.

The Management Board has now engaged Drew & Napier LLC to review the situation, given that there is a strong and unfounded allegation floating around in the blogs and online forums that CHC Management Board and

Reverend Kong Hee are deliberately concealing a number of embarrassing facts from its members. This is furthest from the truth.

They have advised CHC Management Board that Clause 12.1.3 of the Shareholders Agreement, which is binding on CHC through the Deed of Accession and Ratification, obliges CHC to use “all reasonable endeavours to keep confidential … any information which relates to the contents of this Agreement (or any agreement or arrangement entered into pursuant to this Agreement).”

In plain words, CHC is required by the Agreement not to disclose any information and details pertaining to the transaction save for disclosure to the relevant authorities.

We are also advised by our lawyers that further disclosures may be regarded as an “Event of Default” under Clause 15.1 of the Shareholders Agreement, in which event there is a possibility that CHC will be obliged to put those shares it had purchased for sale to the non-defaulting shareholders at a substantial discount on the original purchase price.

As such, CHC urges all members to please appreciate that we did not give you full details and information on the transaction due to a legal requirement of the Vendors / other shareholders, but we have disclosed such details and information to the relevant government authorities as requested by them.


ABOUT OUR LIABILITY

The members of a society, the voting members and also the non-voting members, are not personally liable for any of the society’s financial obligations.

Of the 8 expenditure items that make up the $310m, the only continuing financial liability of CHC will be the committed rental costs for the use of Suntec Convention Center. In the event of non-payment of rent, the creditors have a cause of action against the assets of CHC (i.e. our Jurong West St 91 Church Building), but there is no cause of action against any member or his personal assets – see Section 35(d) of the Societies Act, Chapter 311.


The official release confirms my hunch.

It is Suntec owner who wants to keep this under the radar screen.

KH is not foolish enough to be hiding anything inappropriate but lack of foresight to anticipate that signing an NDA (for 2 years) will have serious personal allegations especially the church has to raise that $310m.

Knowing how desperate the Suntec owners were trying to offload this great liabilty
(imagine the maintenance alone cost about est $12m a year! estimate of $1 a sq ft per month), CHC should have asked why NDA?

There must be a reason why the seller wants to keep the entire deal a secret for 2 years. If they have NOT fully disclosed the "grandfather" obligation to URA, then CHC
can sue the seller later.... BUT if they have fully disclosed the "grandfather" obligation, then there are 2 options:
1. Tell seller that if you want to sell us the place, have the agreement "ratified" by the land owner(URA) then we will sign the agreement. ( a very fair request)
2. Take the risk and sign without the approval of URA.

For the sake of the church I hope it is no.1 and the URA has been shown the agreement and the entire deal is pending the approval of URA.

Reading from the announcement, this may not be the case because it reads
"disclose all material details of the transaction to the relevant authorities (being the COC and the Urban Redevelopment Authority (“URA”)) as requested.". The release did not confirm that URA have sighted the agreement.

I declare my interest here.
I have "no love" for CHC but I cannot keep silent when huge "tycoons" take a church for a ride.
How can they bully a church - you buy! you pay big $millions! and you keep quiet,and keep the deal a secret!(to protect themselves) .

You sign here that you will keep it a secret! If you reveal the deal we have a right to take back your shares! If you cannot pay, I take your Jurong building!
I heard that day you announced about the "exclusive use" part.
I am telling you right now to go and deny that or else we will forfeit your deposit. (which CHC did obediently withdrew the exclusive use) What a bully.

Why is the seller so afraid of allowing contributors to the purchase price (CHC members) see the "beauty of the deal". Obviously there is something to hide.

What are the words in the agreement that can put the seller in a "fix".

It is the two words that CANNOT be revealed " EXCLUSIVE USE". KH slipped and quoted honestly "we have exclusive use"

Now what can be done?

Appointing top lawyers is one thing but if you do not provide them the complete picture, they are handicapped.
I suggest that CHC should write to URA. CHC should provide a complete and frank disclosure about the deal to URA and fully disclose what CHC intend to do with the place. URA may ask who controls the SPV- go ahead tell them the truth the the money comes from the church and the place will be used for church services.
If URA says OK, no problem, just do this and that, CHC will not inherit a huge liability.

There are many other issues with that property. If the leadership PM me, I can possibly spend some time to highlight.
And BTW, have CHC reviewed the strategic partnership agreement with RWS for the use of the convention space.?

 

[elephanto]

The original thread discussing this matter which stretched to 40 over pages with thousands of posts was mysteriously trashed - disappeared overnight for suspected reasons ranging from slander & libel issues to powerful people in high places wanting to silence comment.

To the credit of the forummers there, there started another thread - where I have copied these excerpts from. This 'reborn' thread has 29 pages to date in a matter of days.

Those interested may check it out yourselves :
http://forums.asiaone.com/showthread.php?t=28785&page=29&highlight=90039003

you will find besides the material discussion on the Suntec Deal, other interesting debate on Benny Hinn, CHC's prosperity gospel & other christian-christian disagreements ....

 

[Received_by_Kings]

This investment banker may have a bit of an experience, but from the "narrative" it is beyond doubt that he has very bad English. He probably isn't very high on paper too, maybe I'm wrong. He probably worked his way up from a bank clerk for many many years to where he is now.

Anyhow he must be dumb, superficial and naive too to think CHC and its pastor-leader are very innocent property dabbling lambs ignorant from the harshness of the real world in this field and are always in danger of waiting to be slaughtered JUST BY LOOKING AT THINGS ON THE SURFACE, where additionally in his jumping into conclusions he automatically feels the Suntec sellers are the experienced baddies and the CHC buyers the innocent goodies. Didn't know the business world is so definitive, thanks for the tip.

Also the big irony in his disguised rant is that he seemed much more eager trying to find answers and justification for himself on the development of such things instead of that for everybody else. To top it off he overestimates himself and really, kicks up a big fuss over nothing, just because it seemed related to his line of work and the unimpressive economy gave him some free time to put his mind to these frivolous issues that are none of his concern in the first place. How the NDA came about he totally has no clue either, and coresponding to this is where you all can see that a large part of his wannabe thesis is all but on reason-guided SPECULATION.

So much for "experts".

"Experts" may make more educated guesses than lay people, but at the end of the day let me remind everybody that an educated guess however educated is still but a guess. And that's where many of them get it wrong a lot of times, followed by the usual ritual of silence, pretence and denial on what transpired.

He should seriously stick to his job rather than being a conspiracy theorist or a detective writer. Cos his "analysis" really blows ass. And maybe to while away his spare time, take up jogging in the morning and an English language course at the British Council on some evenings to upgrade himself. I am not certain about you guys, but I wouldn't want somebody to be talking like that to me face-to-face that's for sure.

He should count himself lucky that his spam was only trash-canned (now twice I fear, oh no) and nobody from either side especially the seller group that he perceived as "bullies" was motivated enough to take legal action on him.