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Would You Buy Rowsley Or Its Warrants?
Corporate Digest | 01 April 2014
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By: Peter Ng
Articles (81) Profile

Merely more than a year ago since Rowsley has successfully transformed itself from an investment holdings company into a real estate player, after its acquisition of RSP Architects Planners & Engineers and a land plot measuring 9.23-hectare in Iskandar, Malaysia, to be developed into a massive integrated development named Vantage Bay.

For a company without prior track record in real estate development, it does not take rocket science to understand that in order for such ambitious plans to materialise, aid from a competent party needs to be chartered somehow.

RSP Architects Planners & Engineers

The role of Atlas is without doubt played by RSP, one of the oldest architecture firms in Singapore. Projects undertaken by RSP spur names of iconic developments ranging from shopping malls, commercial offices, infrastructure to master planning such as Clarke Quay, Capital Tower, upgrading of Changi Airport Terminal 2, Chengdu Central Business District, etc.

It is almost engraved in stone that RSP will provide unparallel support to Vantage Bay’s development.

A computerised image of Rowsley’s Vantage Bay

Investment Merits

  • Regardless of investing in ordinary shares or warrants in Rowsley, the initial costs of investment of the two options are lower compared to obtaining a physical property.
  • RSP has established a strong brand name with its services repeatedly hired by organisations as well as the Singapore and China Government.
  • Vantage Bay commands a premium location compared to other developments.

Investment Risks

  • Rowsley has been in three years of consecutive losses. This can be expected as it requires time to turnaround considering that these are by far the two largest acquisitions made by the company.
  • Plans on the high speed rail infrastructure from Singapore to Iskandar are still ongoing.
  • Foreign property taxes imposed on Iskandar developments.

What About The Warrants?

In conjunction to the acquisition of RSP and the land site for Vantage Bay, Rowsley has promised existing investors with two free call warrants at an exercise price of $0.18 for each existing share owned in Rowsley.

The merits of investing in a company’s warrants allows an investor to gain exposure in its share price performance at a lower cost of investment since warrants are commonly issued at a cheaper per unit price compared to its actual securities.

The gearing level of Rowsley’s warrants based on the closing prices of its share and warrant price on 31 March 2014 is approximated at around 2.8. This becomes a double-edged sword as an investor’s potential profits and losses can both be magnified by the same magnitude.

Unlike Contract-For-Difference, it is impossible for an investor who invests in warrants to lose beyond his initial capital since these warrants are fully paid up. Furthermore, a warrant holder is not entitled to dividends.

In terms of dividends, warrant holders will not be shortchanged since Rowsley last declared dividends in 2008 and dividend investors should not be placing their bets on Rowsley anyway.

SI Research Takeaway

Located just a few minutes drive from the Tua Second Link, Vantage Bay can be pictured as a one million square foot-mini city consisting of a 70-floor residential apartment, office space, medical facilities as well as a shopping mall and hotel.

Apart from the remisier king’s reputation for his Midas touch, the success of Vantage Bay would depend largely on two factors. Thanks to the numerous successful track records of developments undertaken by RSP, the probability of the development successfully materialising into what is planned appears to be relatively high.

The missing piece to the puzzle would be confirmed plans for development of the high speed rail infrastructure. Taking reference from the synergies created by the high speed rail connecting London and Paris, this could also potentially be the core factor influencing the success of Vantage Bay and ultimately Iskandar.

At the end of the day, between the two options of investing in Rowsley, one should always be mindful of his/her risk appetite. In an ideal scenario, these potential developments in Iskandar when completed will reward an investor handsomely for their faith, however, should these developments fall through, an investor needs to have a contingency plan in place for such shortfalls.

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

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