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Flyer going to Straco for S$140m
[SINGAPORE] After more than three decades of doing business in China, 64-year-old Singaporean entrepreneur Wu Hsioh Kwang has landed a spectacular deal back home.
Mainboard-listed Straco Corporation, 63 per cent-owned by his family, is buying the 165-metre-high Singapore Flyer attraction by the Marina Promenade for S$140 million. Straco will fund the purchase with part of its S$100 million cash pile. The company will also be taking on debt.
Dubbed the highest observation wheel in the world, the Flyer is a prominent feature of the Singapore skyline. Anticipation over the acquisition had caused Straco's stock price to soar 84 per cent this year. Straco last traded at 82 cents before trading was suspended on Wednesday.
CIMB Research does not see a quick turnaround for the Flyer, and downgraded the stock on Thursday night from "add" to "reduce" with a target price of 79 cents. While acknowledging immediate positive cash flows, it cautioned that high operating costs and interest cost could squeeze margins. "We will turn more positive when visitor arrivals gain traction and bring efficiency gains."
Under the terms of the deal, Straco Leisure, a 90 per cent subsidiary, will buy the Singapore Flyer and related assets from Singapore Flyer Pte Ltd - the company behind the Flyer that ran into financial problems last year and is now in receivership.
The remaining 10 per cent of Straco Leisure is owned by WTS Leisure, a unit of private bus operator Woodlands Transport Service. Woodlands Transport has 350 buses and has been in the local tourism business for over 25 years, a spokeswoman said.
Tim Reid, partner of recovery firm Ferrier Hodgson, said in a statement yesterday that he is "confident that the prospects of the Flyer are extremely exciting under the new ownership".
He revealed that the Flyer is operationally sound and generating positive cash flows. This enabled the receivers to pay all interest and make principal repayments on the debt the previous company owed.
"At the commencement of the receivership, the directors expressed concern that we would need to borrow funds for working capital to run the business," Mr Reid said.
"We have not borrowed funds . . . the receivers implemented changes to the way the business ran and these changes have brought about positive results."
Mr Reid also told The Business Times that with the exception of three larger units designated for corporate events, the Singapore Flyer's 65,000 square foot, three-storey commercial complex is otherwise fully occupied.
Details are scarce on how Straco plans to manage the Flyer to ensure its commercial success.
Mr Wu, Straco founder and executive chairman, said that more information would be released when Straco Leisure officially takes over the asset from the receivers.
This could be two to three months from now after administrative issues such as licences and permits are sorted out.
Straco runs an aquarium in Shanghai, another in Xiamen, and a cable car service at Lishan Mountain in Xi'an.
It remains to be seen if the Flyer can be as profitable for Straco's shareholders as its other attractions. The Flyer's success depends on its ability to reinvent itself and create excitement, said DMG & Partners head of research Terence Wong. "It's all about trying to pull the crowds back."
The Singapore Flyer cost S$240 million to build and was launched in April 2008. It drew about two million visitors in its first year of operations. But visitor numbers then declined to about 1.3 million in 2012, partly because the novelty of the wheel wore off for locals. Many tenants struggled with poor business.
The company behind it then ran into financial trouble, partly because it took on too much debt at the start and revenue ran short of projections. It went into receivership in May 2013.
Since then, a host of interested parties have expressed interest in the Flyer, notably Merlin Entertainments, which owns the London Eye and wax museum Madame Tussauds.
Mr Wu graduated from the then-Nanyang University in 1974. He became a trader in goods such as consumer items and electronics.
In the 1980s, he ventured into China, developing strong ties with many businesses including the state-owned Poly Group. The Poly Group was an early investor in Straco. It now holds a 22.4 per cent stake.
In the 1990s, Mr Wu was developing tourism projects in China. Straco debuted on the Singapore Exchange in 2004 with a price of 26 cents a share, and then traded below 20 cents for many years after.
Buoyed by a domestic tourism boom in the past few years, Straco began reporting stellar profits. Its net profit margin goes above 40 per cent for the third quarter, its busiest quarter due to the summer school holidays.
Lionel Yeo, chief executive of the Singapore Tourism Board (STB), said that Straco had a strong track record in managing overseas attractions. STB will work with Straco Leisure on its plans for the Flyer, he said.
Trading in Straco's stock resumes on Friday.