A Wheelock spanner in Simon Cheong's works?

A Wheelock spanner in Simon Cheong's works?

SINGAPORE - ONCE seen as an ally, Wheelock Properties could now stand in the way of Simon Cheong's plan to take SC Global private and, what some observers believe, escape paying millions in penalties under a recent property ruling.

Under rules passed last year, developers with foreign shareholders must sell all the units in a project within two years after the project receives its Temporary Occupation Permit (TOP).

Assuming the units are not sold within the two-year period stipulated, these developers have to fork out extension charges of 8 per cent, 16 per cent and 24 per cent of the property purchase price for the first, second and third extra years respectively. The amount is prorated based on the proportion of unsold units.

Luxury developer SC Global could potentially face up to $72 million in penalties for its remaining unsold units, and this could balloon to a worst-case extension charge of more than $200 million over the next three years if there are no additional sales from its projects The Marq on Paterson Hill, Hilltops and Martin No 38, according to analyst calculations.

To avoid extension charges, observers say Mr Cheong must not only take SC Global private, he must ensure all the stakeholders are Singapore citizens.

This is because privatisation alone does not make the company's residential projects exempt from the rule, unless the company is fully owned by Singapore citizens. Exemption will be subject to government approval. There is a difference between a "developer going private" and the definition of a "Singapore company" under the Residential Property Act (RPA), according to the Ministry of Law.

The nub here is that Wheelock - which has a Hong Kong parent and is considered foreign - owns a significant 16.09 per cent stake in SC Global, following the purchase of 1.07 million shares, or about 0.26 per cent of total issued shares from the open market.

The sizeable stake gives Wheelock a bargaining chip, assuming it is holding out for a better price than the $1.80 per share Mr Cheong is offering.

There are reasons to believe so. Wheelock bought a 10 per cent stake in SC Global at $6 per share in 2007. At the time, market observers said the entry of an established upscale developer such as Wheelock into SC Global was an endorsement of the company's high-end strategy. There was a subsequent stock split exercise which recalibrated Wheelock's purchase price to $3 apiece. It subsequently upped its stake in SC Global through a series of open market purchases.

Not taking into account the latest acquisition, all that translates to an average cost of $2.35 a share for Wheelock - far more than the price being offered now.

In launching the bid to take SC Global private, Mr Cheong said that delisting will allow SC Global greater flexibility to manage and plan its business, while relieving the company of public listing costs and requirements. But many believe avoiding the costly penalties is a major motivation.

If that is so, he must get Wheelock to play along. SC Global's stock ended trading yesterday at $1.975, which suggests that the market thinks Mr Cheong will recalibrate his offer upwards. Between paying the government millions, or shareholders more, the ball is in his court.

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