JTC's treatment of Jurong Country Club notes grossly unfair, devoid of reason

I refer to "JTC makes early-buyback offer for Jurong Country Club notes" (BT, Aug 26).

The Debenture Note Working Committee's (DNWC) view is that JTC's offer to repurchase the Noteholders Debenture Note (DN) of S$120,000 at only S$84,200 is grossly unfair and devoid of reason.

Read also: JTC says noteholders had enjoyed cheaper club membership fees

Following the acquisition of the land on which Jurong Country Club (JCC) is situated, the club operations and memberships will be terminated by this year-end. It should also trigger the immediate redemption (at par or S$120,000 for each DN) of the DN as both the memberships and DN are legally bundled together, had always been traded together and now must be handled/terminated concurrently.

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 DN to zero coupon bonds of statutory boards being traded under normal market situations. Under such a land acquisition situation, affected parties, namely the club members and noteholders must be fairly compensated. Further, the nature of the DN 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.

Is it fair that each affected noteholder will lose a huge sum of S$35,800 (S$120,000 less S$84,200)? On the other hand, JTC will gain S$35,800 by settling its liability of S$120,000 at a lower sum of S$84,200 for each note it purchases. Arising from the land acquisition, the Singapore government will also benefit tremendously from the huge capital appreciation in the land acquired. Yet, JTC still wants to make a gain at the expense of the noteholders?

JTC has chosen to treat the DN in the manner of a commercial zero-coupon bond/note, by applying a discount from the value of S$120,000 at its maturity date of 2033 back to 2016. This principle is also erroneous.

First, we trust that JTC is honourable in accepting that any principle of calculation it uses must yield a fair outcome when applied consistently throughout the entire DN tenure, and not only at certain points in time at JTC's choosing. For any principle to stand to scrutiny, its applicability must be consistent at any time, as the risk of compulsory acquisition exists throughout the tenure of the DN.

Assuming that the compulsory acquisition had taken place in 1994 (instead of 2016), this would then mean that JTC's offer for the DN would be discounted over 39 years (from year 2033 back to 1994) to a value of only S$53,234 (if calculated at the same annual discount rate). Applying this principle consistently would mean that JTC would have only offered this paltry compensation amount of S$53,234 to noteholders in 1994, only one year after JTC had received S$120,000 of interest-free funds from noteholders in 1993.

This is clearly illogical and grossly unfair, where the principle of discounting is being used by JTC to its own advantage.

Any insistence by JTC on the current discounted offer of S$84,200 thus only has two logical conclusions:

i) JTC misled noteholders in 1993 and in 2003 (the year when the noteholders supported JTC in its restructuring exercise) by passing off a highly disadvantageous arrangement as non-prejudicial to noteholder interest; or

ii) JTC does not abide by consistent principles which can be applied fairly throughout time, but instead cherry picks the ones it wants to apply at any time it chooses.

Neither conclusion paints JTC in a good light. JTC's use of the principle of discounting is clearly erroneous and indefensible. Our humble request to JTC is that it honours the trust in which noteholders had extended to it in the past and especially our support of its business restructuring exercise in year 2003 without which we would not have this problem today.

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 DN at only S$84,200, incurring a huge loss of S$35,800.

The DNWC has been appointed by a significant majority of the 196 noteholders to represent them in negotiations with JTC and we hereby reiterate our request to JTC that it redeems these DN at par (ie at S$120,000 each) at the same time when the noteholders' membership in the club ceases this year. This concurrent timing for termination of the JCC memberships and the full redemption of the DN is necessary as both the DN and the memberships are inextricably "bundled together" as stipulated in the 1993 JCC Prospectus, terms and conditions of the DN, Jurong Country Club Constitution and clauses in the Scheme documents filed by JTC with the High Court.

This request by the noteholders is very fair to both noteholders and to JTC.

Lim Hung Siang

Chairman

for and on behalf of

The Debenture Note Working Committee

This article was first published on Aug 31, 2016.
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