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S$5m value in PropNex prospectus for agents' transfer causing a stir

Transfer previously said to have no dollar value; IPO document also shows new 2016 figures post-audit

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Mr Gafoor of PropNex Reality (left) with Dennis Wee, founder and chairman of Dennis Wee Group, at the signing ceremony of the strategic partnership at the Marriot Hotel on June 12 last year.

Singapore

A S$5 MILLION value pegged to PropNex Realty's business takeover agreement with Dennis Wee Realty (DWR) last year in the initial public offer (IPO) prospectus lodged by PropNex has raised the eyebrows of many observers, who keenly recall the transaction was previously said to have no dollar value.

There was also the concern over the difference between the unaudited revenue and profit given by PropNex to the press last year for the fiscal year 2016 and the audited figures disclosed in the IPO prospectus.

These perceived discrepancies in disclosures were raised by some industry rivals and members of the public following PropNex's lodgment of its IPO prospectus last Thursday.

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PropNex said in the prospectus that it had on Nov 29, 2017 entered into a business takeover agreement with DWR, which provided for the transfer of 845 salespersons from DWR from July 10, 2017.

"The aggregate purchase consideration was S$5 million," the IPO prospectus states.

But this figure has prompted some to write in to The Business Times on what they perceive to be discrepancies between what is disclosed in the IPO prospectus and what was announced by PropNex earlier last year.

The deal with DWR to have its agents cross over to PropNex made the latter the country's largest real estate agency in sales force, nudging long-time No 1 agency ERA Realty to second place.

During a press conference on June 12 last year at the signing ceremony of the strategic partnership, PropNex CEO Ismail Gafoor touted a "no numbers approach" in the transaction with DWR, for which there was no monetary terms nor equity transfer between the firms.

According to the IPO prospectus lodged by PropNex, however, a business takeover agreement was inked a few months later in November, after some 80 per cent of DWR's 1,063 agents crossed over to PropNex.

Under the agreement, the S$5 million purchase consideration includes a one-time cash payment of S$700,000 to DWR upon execution of the agreement.

PropNex Realty shall pay to DWR the balance of the purchase consideration in monthly instalments, up to a maximum of S$4.3 million for an agreed period of up to July 10, 2027, with each instalment being 1.5 per cent of the monthly gross commissions clocked by ex-DWR agents.

Upon full repayment of the balance cash sum or expiry of the agreed period, whichever is earlier, PropNex Realty shall pay to DWR biannual instalments over a 10-year period, with each instalment being 0.5 per cent of gross commissions clocked by ex-DWR agents for each six-month period.

In other words, how much of the balance portion of up to S$4.3 million will be paid by PropNex Realty hinges on whether DWR agents continue to stay with PropNex and remain productive in closing deals.

Robson Lee, a partner at Gibson Dunn, said that while the IPO prospectus is a legal document, "at the time of the press conference, PropNex and Dennis Wee Group were not listed. So, there is no legal responsibilities, perhaps only reputational risk."

He noted that as private entities, they were under no legal obligation to disclose the value terms too when they firmed up the value in the business takeover agreement.

But some observers also took issue with the differences in disclosures of PropNex's revenue and profit for the fiscal year 2016.

PropNex's revenue and net profit for fiscal 2016 was S$245 million and S$7.6 million according to its IPO prospectus, lower than the respective S$278.9 million and S$9.23 million previously quoted in the press on June 13, 2017.

When contacted, Mr Gafoor declined to comment due to regulatory restrictions prior to the registration of the IPO prospectus by the Monetary Authority of Singapore (MAS).

Mr Lee of Gibson Dunn noted that it is unclear if the financial figures presented to the press last year were audited figures. "If they were, then it raises questions."

The soon-to-be launched IPO will comprise a placement and a public offering, with cornerstone investors having also entered into subscription agreements for a total of 50 million shares.

The cornerstone investors are Affin Hwang Asset Management Berhad, FIL Investment Management (Hong Kong), Nikko Asset Management Asia, NTUC Income Insurance Co-operative, Samsung Asset Management (HK) and Value Partners Hong Kong.

The public can submit comments on the lodged prospectus to the MAS, which will register the prospectus within seven to 21 days of lodgment unless it extends the time period by up to 28 days or decides to refuse the registration, or the issuer requests registration at a later date.

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