SC Estate Builder’s hotel acquisition under scrutiny

WHEN a company with accumulated losses on its books and a market capitalisation of just over RM50mil tries to buy a stake in a non-operational hotel, it is only natural for the deal to attract scrutiny.

The fact that the hotel belongs to the mother of the company’s chairman further draws attention.

The company in question is SC Estate Builder Bhd – a one-sen stock – and its chairman is 35-year-old Loh Boon Ginn.

On Jan 15, SC Estate proposed to acquire a 25% stake in Sentosa Club Hotel Sdn Bhd, which owns Sentosa Regency Hotel in Alor Setar, Kedah, for RM18.79mil.

Sentosa Regency Hotel has been non-operational since 2021.

The RM18.79mil consideration will be settled via the issuance of redeemable convertible preference shares (RCPS) in SC Estate, carrying a 2% preferential cash dividend per annum.

This means SC Estate will pay Koay Seok Chin, the hotel owner and mother of Loh, RM375,800 in dividends annually until the RCPS are either redeemed or converted into ordinary shares.

The payment is also subject to SC Estate having sufficient distributable profits.

SC Estate told the stock exchange that the acquisition will mark its diversification into the property investment business.

The company intends to convert part of the Sentosa Regency Hotel into its own head office, while the remaining portion is expected to be reconfigured into office space for leasing purposes to generate rental income.

The cost of converting Sentosa Regency Hotel into the head office will be borne by SC Estate, while the cost for the office space to be leased will be borne by Sentosa.

“In the event Sentosa requires additional funding for such conversion works, SC Estate shall provide the funding in proportion to its percentage of shareholding in Sentosa,” SC Estate said in a filing with Bursa Malaysia.

As per its latest financial statement, SC Estate has just over RM5mil in cash, though it carries zero borrowings.

Over the past two years, the company has undertaken a rights issue and a private placement, largely for project funding and working capital.

It is also noteworthy that the company has changed its financial year-end four times in just over five years. At this point, it looks like SC Estate’s entry into Sentosa Regency Hotel will give the hotel a new lease of life.

But will the acquisition benefit SC Estate and its minority shareholders as expected? Only time will tell.

In the meantime, all eyes will be on the report by Asia Equity Research Sdn Bhd, which is acting as the independent adviser to the non-interested directors and shareholders regarding the proposed acquisition.