The Meritt Saga

After a hiatus of 3+years, a solution has possibly been found, but the questions linger on. Some serious lessons have hopefully been learnt

Driving past the Trianon Shopping Mall (TTSM) during the last three years, many people have been intrigued by one of its unfinished neighbours. Just half a kilometre past the St Jean roundabout and the sprawling TTSM, we have there futuristic — of the five planned — circular towers comprising 50 apartments each of Le Meritt Elipsis (LME) complex standing idle. The green protective netting has long fallen prey to the vagaries of the weather, and the rusting scaffolds have certainly seen better days. With its striking white walls, it might not be inappropriate to call the LME a white elephant.

LME

LME is a Rs 3.3bn project and the brainchild of the two promoters of Le Meritt Holdings (LMH). They are well-known Mauritian architect Henry Loo and Ken Yeo from Singapore, another award-winning architect. Six years after its foundation in 2007, LMH was floated on the Stock Exchange of Mauritius (SEM) in January 2013 with an initial public offering (IPO) of 83.2m shares priced at Rs 10 each thus realizing a total book cash value of Rs 832m from the investing public.

Subsequently March 2013 saw the company post impressive profits of Rs 50m. However the following year March 2014 saw the bottom line plummet to a paltry Rs 5m. Something was obviously amiss.

Bubble burst

Only 1.5-years (is this a record, one wonders?) the SEM suspended dealings in LMH shares in July 2014. It followed this, three months later (in Oct-2014), by a complete withdrawal from the official listing. The bubble had apparently burst almost as soon as it had formed. SEM’s decision to delist signalled the death knell of the Company, leaving creditors little choice but to appoint PwC as liquidator.

Yet only 22 months earlier, at the launch of LMH in January 2013, the CEO of the SEM was proudly announcing how the SEM had enabled companies to raise an impressive Rs 12.2bn to finance their development. In view of the failure of LMH within such a short time, people are left to wonder how rigorous were the “due diligence” carried out by the SEM prior to the float. Indeed similar questions may arise in their minds about all the other companies too.

Optimism

The behaviour of LMH left people somewhat perplexed. In April 2014 it was writing to shareholders to inform them that the Company was facing difficulties. On the other hand, only a month later in May 2014 (there was already talk about possible bankruptcy), it was sounding very optimistic again about its project. It had apparently found a lifeboat!

Apparently renewed interest was generated as a result of an agreement signed between LMH and the Beijing Construction Engineering Group (BCEG). The latter had reportedly secured a loan of USD 30m from the China Export and Credit Insurance Corporation (CECIC) to accelerate construction and expedite further funding to complete the project. Property expert David Boyce was appointed as COO to strengthen the management team.

Nevertheless reading between the lines there was a hint that things were not as rosy as they were being painted. Immediately after his appointment, David Boyce announced, “Now we are targeting Mauritian foreign investors and eligible expatriates living in Mauritius.” Whether this was a reflection of dwindling interest from the anticipated number of non-resident Mauritians and non-resident foreign investors per se — with potentially wider margins? — can only be guessed at.

Transparency

For the public to have confidence in a listed company — or any company for that matter — good governance and transparency are the key operative words. In an interview granted to a local newspaper, Henry Loo had this to say, “Une des raisons pour lesquelles on entre à la Bourse de Maurice, c’est aussi pour venir renforcer cette crédibilité et transparence.”

Yet amidst fears of bankruptcy in May 2014, LMH merely published an abridged financial statement for Quarter March 2014 and failed to provide a thorough market update on its business. Consequently the SEM decided to suspend dealings in LMH shares until “the company provides the market with complete and updated information on the status of its operations, its financial situation and initiatives that it plans to undertake.” When this did not follow, the shares were naturally delisted.

With liabilities amounting to Rs 300m at the time, experts estimated that the Company would need Rs 1bn to complete the 250 apartments (50 per tower). The USD 30 that Beijing Construction Engineering Group had apparently negotiated with China Export and Credit Insurance Corporation would probably have sufficed but, for some unknown reason. However when this did not materialize, the project was just put on hold.

 Happy Ending

That is, until now! In spite of appearances to the contrary, things are apparently on the move. One newspaper reports that the Beijing Construction Engineering Group bought out the project for Rs 1.8bn in October 2016. According to the Group’s Deputy MD Cao Jinkui, work has already re-started on the three towers in June 2017. He assures the public that these towers comprising 150 apartments (priced Rs 4.8m – Rs 12.8m) will be ready for delivery in July 2018.

This will mark the end of 5+ very long and very stressful years of waiting, and a happy end for the 98 customers who had actually paid/part paid for their flats before LMH went into liquidation.

Questions

There have been a fair number of twists and turns involving the LMH in the last 4+ years. Companies are normally floated on a Stock Exchange with the intention to stay on its listing indefinitely. It is far from usual to be delisted within two years of a float. This has left some people wondering if the SEM was not too indulgent with the LMH.

Others wonder how any stockbroker could have recommended the IPO shares to potential investors. In the end they have proved to be anything but a sound investment — leaving probable losses in the hands of the shareholding public and non-performing loans or even impaired assets in the books of financial institutions.

Yet others wonder how could estate agents have recommended their customers to buy into a project which, right from the beginning, was showing signs of being an unsound venture, constantly failing to achieve the targets appearing on its Listing Particulars.

It is true that, after a hiatus of 3+years, a solution has possibly been found, but the questions linger on. It is to be hoped that some serious lessons have been learnt by the institutions in Port-Louis from the LMH saga!

        

*  Published in print edition on 27 Oct 2017

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