JTC debenture noteholders had already benefited when they purchased their Jurong Country Club (JCC) memberships way below market prices in 1993, JTC said on Tuesday in response to noteholders' unhappiness with its buyback offer.
Harold Soong, director of corporate finance at JTC, presented its case in a letter to The Business Times, in response to noteholders who cried foul at the offer of an early redemption at a discount.
The letter said: "In 1993, to raise capital for a new clubhouse and upgrading works at the golf course, Jurong Country Club sold 196 memberships bundled with notes issued by JCC Ltd. Each membership with note was priced at S$150,000, comprising S$30,000 for the membership and S$120,000 for the note . . .
"In comparison, we understand memberships without notes were trading in the secondary market at S$105,000 to S$119,000 between 1992 and 1993."
Following news that the club will be acquired by the government, JTC last week offered to buy back debentures with a total face value of S$23.5 million from noteholders, 17 years ahead of the 2033 maturity date, but at a discount. So instead of S$120,000, JTC is offering each person S$84,200 after employing a discounted cash flow method to arrive at the present value of the notes.
Disgruntled noteholders have been writing to BT to demand that JTC redeem their notes early and at par, at the same time that their membership terminates and the land is taken back by the state at year-end.
In justifying JTC's stand, Mr Soong said: "The discount rate used was the yield of Singapore government bonds, commonly known as the risk-free rate. Based on this methodology, JTC's offer price is S$84,200 for notes with a principal value of S$120,000.
"In comparison, we understand that memberships with notes were traded in the secondary market at S$61,000 to S$64,000 during the period 2012 to 2014, while memberships without notes were traded at S$44,800 to S$50,400 over the same period. Hence, we believe JTC's offer of S$84,200 for the notes alone is fair and reasonable."
In a strongly-worded letter to BT written on behalf of the debenture note working committee (DNWC), committee chairman Lim Hung Siang slammed JTC's offer as being "grossly unfair and devoid of reason".
Mr Lim said that the termination of the club's operations and memberships by December should trigger the immediate redemption of the notes at par, because both the memberships and debenture notes are legally bundled together, traded together and so should also be terminated together.
"In arriving at its proposal, JTC has totally ignored the consequences and effects of the land acquisition. It is not a normal market situation where JTC can equate the debenture notes to zero coupon bonds of statutory boards being traded under normal market situations."
He added: "Under such a land acquisition situation, affected parties, namely the club members and noteholders must be fairly compensated. Further, the nature of the debentures notes is not by itself a tradable instrument. It is, in substance, an interest free loan owing by JTC. As a debt, in normal market practice, it has to be repaid in full unless the borrower JTC is under financial distress."
Mr Lim also took issue with the way the present value of the notes of S$84,200 was calculated. He argued that if the same principle was applied to a hypothetical compulsory acquisition date of 1994 (a year after the note issuance) instead of 2016, JTC would have offered a mere S$53,234 after applying the same discount rate over 39 years on the same notes. If so, that would have been "illogical and grossly unfair".
He added that if JTC insists on not budging on its current offer, it would mean that the issuer had misled noteholders in 1993 (when the notes were issued) and in 2003 (when the issuer was changed from JCC Ltd to JTC) by "passing off a highly disadvantageous arrangement as non-prejudicial to noteholder interest".
"Members and noteholders are already suffering much pain due to the loss of their beloved club where they have built up many friendships over the years. It will be a double whammy for them to suffer additional losses if they are forced to sell their debenture notes at only S$84,200, incurring a huge loss of S$35,800," he said.
Another noteholder, former banker Chong Hon Leong, also wrote, saying: "Isn't this daylight robbery of the pioneer generation who had contributed much to the development of JTC and Singapore for the past 23 years by bringing investors to Jurong when we entertained or golfed with them at JCC? Why is JTC treating our pioneer generation this way?"
None of the noteholders who wrote in to BT mentioned the membership that they managed to obtain at about a third of secondary market prices in 1993.
JTC has invited noteholders for a briefing this Thursday at its Jurong office to address their concerns and questions about the offer.