PETALING JAYA: Paramount Corp Bhd is slowly monetizing its assets in the education business and entrenching itself in real estate, in line with its strategic plan to become a pure real estate group.
It is selling its basic education business to more than half a billion ringgit, but will still hold a minority stake in the three entities it is divesting. Basic education is for kindergarten through twelfth grade children.
Paramount will receive a cash consideration of RM540.5mil for the sale of its controlling stake in three wholly owned subsidiaries – Paramount Education Sdn Bhd, Paramount Education (Klang) Sdn Bhd and Sri KDU Sdn Bhd – for Two Horses Capital Sdn Bhd.
It plans to use 32.7% of the resources or RM177,000 – the largest portion of its intended use – as a special cash dividend for its shareholders within six months of the completion of the sale.
The group also plans to use RM150mil to replenish its land bank and RM133.66m to repay its loans.
There are also options for Paramount to exit target companies in fiscal year 2021, or if Two Horses exercised their rights to buy the remaining holdings.
Jeffrey Chew, the group's chief executive, told StarBiz that in addition to stockpiling its land bank and using the resources for its development projects, Paramount did not have big investments in mind and therefore did not plan to keep all the money for itself .
"We are slowly trying to monetize our assets in education. We are also beginning to explore our strategy on properties beyond the Klang and Penang Valley in slightly smaller cities (in the country) and in one or two locations outside of Malaysia.
"It would be a careful base and little bite," he said.
Chew said the group is also well aware of the scanning process that is affecting several industries and has since made small investments in start-ups in open learning, co-working space and the online higher education platform.
"We are slowly sowing seeds in investments in various businesses, which may be key in the next five to 10 years. That is why the funds would be used for these purposes as well as for working capital, "he said.
Upon completion of the proposed disposal, Paramount will hold only 30.3% in Paramount Education and 20% each in Paramount Education (Klang) and Sri KDU.
It will also hold an effective 20% stake in REAL Education Group Sdn Bhd, of which Paramount Education owns 66%. The remaining 34% are held by Character First Sdn Bhd, which will be fully sold for two horses.
Disinvestment is subject to approvals from the Ministry of Education and shareholders.
Paramount said in a filing with Bursa Malaysia that the 69.7% indicative provision consideration in Paramount Education and 80% each in Paramount Education (Klang) and Sri KDU was based on earnings before interest, taxes, depreciation and amortization of the target companies. as well as REAL Education for the fiscal year ended December 31, 2018 of RM53.8 thousand, multiplied by an agreed multiple of 16 times.
This results in an implicit RM861mil company value for a 100% stake in target companies and REAL Education.
Paramount will also make a pro forma gain of approximately RM487.8 million, which will translate into an improvement in earnings per share of RM1.10.
In a statement, Chew said that Paramount's ambition has always been to strengthen its business locally with the goal of expanding regionally.
"To do this, we believe the most efficient way is to work with a strategic partner with experience, network and financial capacity," he said, adding that Paramount would still have representation on the board of Sri KDU schools and the REAL Education Group to ensure continuity expertise and leadership in schools.
He also said the move would help investors see Paramount's two real estate development and education businesses as self-employed. With this, Paramount will focus its resources to increase its property development division.
Chew added that Paramount still saw enormous potential in the basic education business and there is still a strong synergy between education and property development.
Two Horses is led by Tunku Ali Redhauddin Tuanku Muhriz and Ganen Sarvananthan. Tunku Ali was involved in assisting the establishment of the independent British school Marlborough College in Malaysia and serves as its president here and as a member of the International Council in the United Kingdom.
He is also the founding administrator and chairman of Teach For Malaysia and a senior advisor at TPG Capital Asia.
Ganen is a Managing Partner of TPG Capital Asia and was previously the chief investment officer of Khazanah Nasional Bhd. He also played a key role in the investment of TPG Capital Asia in the Australian International School of Vietnam, which has about 8,500 students on seven campuses in Ho Chi Minh City.
"We are happy to embark on this journey with Paramount, the largest high school education group in Malaysia. We strongly believe in the growth potential of the group and industry in Malaysia and abroad, "said Tunku Ali.
Rothschild & Co is Paramount's sole financial advisor, while RHB Investment Bank is the only principal advisor. Credit Suisse is the purchase side consultant for the transaction while Malayan Banking Bhd is co-advisor to TPG.
TPG Capital Asia, the Asian investment platform of global alternative asset company TPG, will provide financing and strategic and operational support for Two Horses Capital, including leverage of its network and education experience.
Paramount closed up 4.81% on RM2.18 yesterday with four million shares traded.