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3 Things You Need To Know About The Initial Public Offering Of Terratech Group

IPO

Initial Public Offerings in Singapore seem to be really popular this month. With five IPOs already scheduled to close by July according to Singapore ExchangeTerratech Group would be a new addition to Singapore’s share market soon.

Some of the IPOs that closed in this month include those of Spackman Entertainment Group (SGX: 40E), First Sponsor Group  (SGX: ADN), Frasers Hospitality Trust (SGX: ACV), and Starburst Holdings (SGX: 40D).

Terratech Group is a premium quality marble producer from Malaysia. It deals with the exploration, development, quarrying, extraction, removal, and processing of marble. The company currently owns a 33-year lease at the Kelantan Marble Quarry in Malaysia.

Although the prospectus for the company is 441 pages long, I’ve distilled three main things you need to know about the IPO.

1. Why list on the Catalist board?

The first thing to note about the IPO is the fact that it is planning a listing on the Catalist board instead of the Mainboard. This is because there are a number of conditions a company has to fulfil in order to be eligible for the Mainboard. According to Singapore Exchange’s listing manual, one key condition a company has to fulfil would be to satisfy one of the following requirements:

“(a) Minimum consolidated pre-tax profit (based on full year consolidated audited accounts) of at least S$30 million for the latest financial year and has an operating track record of at least three years.

(b) Profitable in the latest financial year (pre-tax profit based on the latest full year consolidated audited accounts), has an operating track record of at least three years and has a market capitalisation of not less than S$150 million based on the issue price and post-invitation issued share capital.

(c) Operating revenue (actual or pro forma) in the latest completed financial year and a market capitalisation of not less than S$300 million based on the issue price and post-invitation issued share capital. Real Estate Investment Trusts and Business Trusts who have met the S$300 million market capitalisation test but do not have historical financial information may apply under this rule if they are able to demonstrate that they will generate operating revenue immediately upon listing.”

Terratech Group would face a few issues if it is to apply for a Mainboard listing.

2. Yet to make a profit

The key thing preventing a Mainboard listing would be the fact that the company has yet to make any profit from its business operations. In fact, based on its prospectus, Terratech Group has yet to earn any revenue as of 31 December 2013. According to Terratech Group’s press release, the company had commenced commercial production of its marble blocks in 2012 and it was only in February this year that the company had managed to book its “first sales of marble slabs to a third party customer.” The company currently has an book order of S$23.5 million.

3. Vendor shares

The third important thing to note about Terratech Group’s IPO would be its vendor shares. Of the 108.7 million shares the company is planning to sell for the IPO placement, vendor shares account for 65.2 million. These vendor shares come mainly from private equity outfit Luminor Capital’s stake in Terratech Group.

The huge chunk of vendor shares in the IPO would mean that roughly 60% of the capital that Terratech Group hopes to raise through its listing would go straight into the pocket of some of its existing shareholders instead of to itself.

For a company betting on potential future growth (remember, it had just booked its sales for the first time earlier this year), it is very interesting to see some existing shareholders selling their stakes (either partially or fully) at such an early stage.

Foolish Summary

To summarize, Terratech Group is a Malaysian marble producer with no profits and almost no revenue currently. Investors who are planning to invest in the company would also need to know that only 40% of  their capital would be going into the company. Lastly, Terratech Group is hoping that the demand for marble in China will catapult the company to profitability very soon. The company would have a market capitalisation of around S$142 million based on its listing price.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.