Tuesday 10 February 2009

Gallant needs to shed light on its land dispute

Given the recent spate of bad news in the corporate world, the piece of news on Gallant Venture’s loss in a lawsuit could almost have gone unnoticed.

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Guanyu said...

Gallant needs to shed light on its land dispute

By LYNETTE KHOO
10 February 2009

Given the recent spate of bad news in the corporate world, the piece of news on Gallant Venture’s loss in a lawsuit could almost have gone unnoticed.

Last month, BT obtained a court document which showed that Gallant’s subsidiaries and PT Bintan Lagoon Resort (BLR) had lost a land dispute lawsuit to PT Raflesia Matrawisata. Two weeks have passed without Gallant clarifying its side of the story.

But yesterday, the usually illiquid stock hit the top volume chart as it plummeted 33.3 per cent, leaving dealers clueless about what triggered the fall, while one broker made a wild guess that there could be margin-selling.

One wonders why the sudden plunge amid a lack of information. Gallant’s senior management say that they still have not received the judgment, which is supposed to be issued by the Supreme Court of Indonesia in Jakarta.

But with shareholders still unclear about the status of this lawsuit and the unusual behaviour of the stock yesterday, some answers are badly needed.

For one, there remains uncertainty over Gallant’s ownership of some 863,353 square metres of the land in dispute. Also, it may have to pay penalties imposed in the judgment. What should then be the next step for Gallant?

The court case started in April 2006, when PT Raflesia sued two of Gallant’s subsidiaries - PT Buana Megawisata (BMW) and PT Bintan Resort Cakrawala (BRC) - and another company, BLR, over a total of 963,353 sq m of land on the north shore of Bintan Island.

PT Raflesia claimed ownership of the land and demanded compensation. Its claims were earlier rejected by Bintan’s Tanjung Pinang District Court in 2007 and the Riau High Court in 2008. But in an unexpected twist, the Supreme Court of Indonesia in Jakarta threw out the decisions made by the two lower courts and pronounced PT Raflesia the rightful owner of the lands in question.

This courtroom drama may be baffling for the sharp reversal of verdicts. But issues surrounding the Indonesian law aren’t the focus of this piece. The onus now is for Gallant to seek clarification from the court and provide some clarity to shareholders.

According to the court document obtained by BT, the court ordered that the defendants relinquish their rights over the disputed lands within 14 days from the publication of the judgment and demolish any buildings on the lands.

Gallant subsidiaries BMW and BRC, as well as BLR, were also ordered to pay PT Raflesia compensation of 33.25 million rupiah (S$4,256) for survey fees, 57.54 billion rupiah for loss of income, and a cash charge of 500,000 rupiah.

Shareholders can take comfort that even if this judgment ultimately holds, it is unlikely to hurt Gallant’s financials, since its substantial shareholder Parallax Venture Partners XXX Ltd (PVP) has agreed to indemnify in full any losses or damages as a result of this suit.

Also, this dispute involves only eight certificates of ownership out of over 99 certificates held by Gallant and represents less than 0.5 per cent of its total land portfolio. Gallant does not have properties on the land in dispute.

But whether the impact is material or not, there is no good reason to put off clarifying this matter as this issue is of interest and concern to its shareholders.

Since Gallant’s backdoor listing at 50 cents apiece in June 2006, shareholders have probably found it hard to profit from the illiquid non-dividend paying stock, which has fallen by some 70 per cent from its initial public offering (IPO) price, and gave up 90 per cent of its gains from the peak in February 2007.

The stakes of its two largest shareholders, the Salim group and Sembcorp Industries, add up to a significant 77.26 per cent, based on latest available information.

Although Gallant had sought to justify its eye-popping price-earnings ratio of 94 times historic earnings at the point of listing, there have been few compelling stories in its annals since then.

The jewel of Gallant’s investment business is said to be the development potential of its 14,400 ha land bank at Lagoi Bay, just west of the existing Bintan resorts and one-third the size of Singapore. This piece of land does not fall within the lands in dispute with PT Raflesia.

One captivating story so far was talk of a casino being built on this land, which would be Indonesia’s first, if Jakarta gives the go-ahead. But that has remained just that, a story.

Now, with land sale orders at Lagoi Bay slowing at an alarming pace - there have been no new sale orders since September 2008 - and a quarterly decline in group profits most of the time, Gallant appears to lack catalysts in its business. It doesn’t help that more than two years have passed without a proper closure to the land dispute with PT Raflesia.

So far, information flow from the company has mostly been in the form of SGX filings on land sale agreements for its Lagoi Bay development and the usual quarterly financial reporting, beyond which there appears little effort to engage its shareholders.

What is needed now is for Gallant to shed some light on the legal tussle and any plans that it has to boost its business. Some answers to the land dispute that has plagued the company since its listing will only do itself good.