The acquisition in December 2018 of a nearly 10-percent stake in Australia-listed Asian casino operator Donaco International Ltd occurred in “unacceptable” circumstances, said the country’s Takeovers Panel in a Tuesday press release.
The panel ordered the vesting of the 9.71 percent stake in Donaco acquired between December 7 and December 31 by an entity called OL Master (Singapore Fund 1) Pte Ltd – referred to as “OCP” for short.
The announcement from the regulatory body was filed by Donaco with the Australian Securities Exchange on Tuesday morning. Earlier in the day, Donaco had announced a pause in trading.
In its Tuesday announcement, the Takeovers Panel said that at relevant moments “the market was not aware” that OCP was already a senior secured creditor of a company controlled by Joey Lim Keong Yew, former chief executive and current non-executive director of Donaco, and that Mr Lim’s business was already in December in default of his credit deal with OCP.
Such a credit relationship was via senior secured bonds issued in May 2017 by Total Alpha Investments Ltd – a vehicle wholly controlled by Mr Joey Lim – in the principal amount of just under US$34.3 million. OCP’s security in the bonds deal was a right to exercise voting powers over a 27.25 percent stake in Donaco.
The Takeovers Panel did not mention in its announcement the reason Mr Joey Lim had sought to raise the cash.
In mid-December Donaco had told the exchange it was considering what to do about a US$39.9-million debt to Taiwan’s Mega International Commercial Bank Co Ltd – an institution known as Mega Bank – which was secured against the assets of Donaco’s Star Vegas Resort and Club in Poipet, Cambodia.
Donaco had said in a March 4 filing that a change of control in a 27.25 percent stake in Donaco – as referred to on Tuesday by the Takeovers Panel – might be considered by Mega Bank as a “change of control” under the terms of the bank’s loan agreement.
Donaco has been engaged in a dispute with several Thai businessmen that formerly owned its Star Vegas Resort. The border facility has specialised in serving customers from neighbouring Thailand, where casino gambling is illegal.
Donaco made a loss after tax of AUD124.5 million (US$88.4 million) for the financial year ended June 30, which took into account a non-cash impairment charge of AUD143.9 million in the value of the licence at the Star Vegas – a consequence of the ongoing dispute. In late February the firm said it had narrowed its loss for the the six months to December 31, 2018.
Interest payment default
The Takeovers Panel stated on Tuesday that at the time of the 2017 credit deal between OCP and Mr Joey Lim’s vehicle Alpha, “OCP did not disclose its lending and security arrangements… with the grantors” of the security, and “none of the grantors, including Mr Joey Lim, disclosed the lending and security arrangements…”
On November 5 last year “Alpha failed to make an interest payment on the bonds which constituted an event of default under the bond instrument,” said the Takeovers Panel.
Following a fall in the Donaco share price in late November 2018, OCP decided to acquire up to 10 percent of the shares in Donaco, meaning it would afterwards control a 37-percent stake in the casino firm.
“Prior to purchasing, OCP considered its disclosure obligations including that, once its holding exceeded 5 percent, it would need to disclose the option deed and this would reveal the related lending and security arrangements with the grantors,” noted the Takeovers Panel.
On December 3, the security trustee in the secured bonds deal from 2017 requested that Alpha provide top-up shares in Donaco to maintain the required share collateral value under the specific security deed. “Alpha did not do so within the time specified,” stated the Takeovers Panel.
Matters came to a head on January 18 this year, when – under instruction from OCP – the security trustee issued a letter of demand on Alpha.
As a result of the enforcement of the security, OCP, the security trustee and commercial receivers obtained a relevant interest in the secured shares representing 27.25 percent of Donaco.
“At no time between 5 May 2017 and 1 March 2019, was Donaco or any of its directors (other than Mr Joey Lim and his brother), or the market generally, aware of the security or lending arrangements (including the option deed and options),” said the Takeovers Panel in its Tuesday announcement. It did not identify Mr Joey Lim’s sibling by name.
In mid-March, Donaco said it had terminated the employment of Mr Joey Lim “with immediate effect”. That filing said Ben Lim Keong Hoe, a brother of Mr Joey Lim, remained as of that time interim managing director and CEO of Donaco.
In Tuesday’s announcement, the Takeovers Panel said the Australian Securities and Investments Commission would now be responsible for the sale of the nearly 10 percent stake in Donaco shares via “the most appropriated sale method”. The proceeds of such sale – net of relevant costs – would be returned to OCP, it said. The commission has three days to retain an appointed seller, and the sale must be completed six months after such institution is engaged, said the Panel.
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