Case Study: Raising Capital in Asia
Building a new attraction—or expanding an existing one—takes money, lots of money.
Where do businesses, particularly small and medium-sized operators in Asia, raise the capital?
Outside of gaming in Asian markets, relatively few attractions turn to the stock markets. One company that has, though, is Sim Leisure Group (SLG), which listed on the Singapore Exchange in March. The company, founded by industry veteran Sim Choo Kheng, gave Funworld an unprecedented look into how the company raises capital for new projects.
Today, SLG runs three attractions in Penang, Malaysia—Escape Adventureplay, Escape Waterplay, and the soon-to-be-open Escape Gravityplay—and has plans to launch as many as 10 more parks in China over the next decade.
The recent stock market listing did not go as smoothly as the company may have hoped. SLG raised S$5.8 million, only about half of its goal, and SLG shares debuted some 20% below their initial public offering price.
“Many investors do not understand attractions,” says James Bywater, a Singapore-based senior consultant with the investor relations company Financial PR, which has represented SLG. “They assume that attractions require high capital expenditure, which will eat into returns.”
That sentiment contributed to SLG’s poor debut; yet, it also can help explain why more attraction companies don’t go public. Bywater says this has led many investors to question whether Western business models can translate into Asian success stories.
Sim, though, has no second thoughts about his company’s listing. He sees his model as a disrupter, in the same way that discount carriers have reshaped travel. The Escape parks are low investment, low tech, and don’t use expensive intellectual property. Instead, visitors will find trees and adventure play areas.
“I can build an entire park for what some spend on a single coaster,” Sim says. His parks are profitable—netting 21.5 million Malaysian ringgit last year—and winning recognition as the Best Tourism Attraction in Malaysia from Malaysia Tourism and TripAdvisor a year earlier. Now, he wants to take his “low tech, high fun” model to China before others follow.
“In order to move fast, we need to have access to the capital markets,” he explains, adding that the listing in Singapore has raised his company’s profile. It’s a seal of approval that will make the next round of funding easier. That certification doesn’t come cheap, though. SLG spent S$1.7 million to prepare the listing, and it expects compliance to cost another S$300,000 a year.
The sale of 26 million shares in Singapore was, in essence, SLG’s third round of funding. Like many companies, Sim started by investing his own money—8 million ringgit—in 2011. As the attraction did well, he wanted to expand. But when he approached banks for a loan, he was always met with the same response.
“In this part of the world, cash flow is generally not bankable. Loans are very much security-based,” he explains. “Plus, with many theme parks built on government land, the land itself cannot be used as collateral.”
Without a commercial loan, the Sim Leisure Group seemed stuck. Escape Adventureplay was profitable, but organic growth would take too long. Fortunately, the Penang government approached SLG several times. It saw attractions as a key part of its tourism strategy and was keen to see Sim expand the dry park and open a water park, too, so keen that it was willing to invest.
“Attractions boost tourism and can bring about sizable economic and social benefits, which lead governments to want to invest,” explains Mark Wijman, a 15-year industry veteran who has worked on projects across the region during his tenure at AECOM, the Lan Kwai Fong Group, as well as parks in Europe and Vietnam.
For many attractions, entry into a market or expansion can be challenging without government support.
“Theme parks can require vast amounts of capital, which can be difficult to raise without the financial involvement of the local government,” Wijman adds.
Back in Malaysia, the Penang government invested 16 million ringgit in SLG in the form of redeemable convertible preference shares. Sim had to ante up another 12 million ringgit as well. The additional funding enabled SLG to launch the Escape Waterpark and Escape Gravityplay.
Whenever you take on a major investor, though, there can be drawbacks as well as benefits. For one, you may not see eye to eye. Sim says the Penang government fund was “ultra-conservative,” limiting his company’s ability to take on further debt to expand overseas. The interest rate was high, too, and the company faced a major payment if it did not buy out the government’s stake soon after listing shares.
As soon as SLG went public, it used the proceeds to buy out the Penang government’s stake. While the move raised eyebrows among some investors, it lowered the company’s gearing ratio to zero, which should help the share price down the line, as well as SLG’s ability to finance its next phase.
Capital Raising Pointers
- Explore Local Government Financing
Attractions generate tourism, jobs, and tax revenue, so city and state governments may be keen to support new ventures, even if it’s not a mega-project. Government assistance can take many forms, including public-private partnerships, direct investment, help securing loans, tax breaks, new infrastructure, and marketing support.
- Special Demands
Government investment can have strings attached. It may support your business model at some stages of a project, but not others. Public financing may necessitate public hearings and invite additional media scrutiny.
- Seek Help
“Data and proposals prepared for government review often ‘land better’ when they come from a reputable third party, rather than the attraction itself,” says industry veteran Mark Wijman. “Simply put: credible partners make your project more credible.”
- Develop a Timeline
“When it comes to listing, timing and market sentiment are everything,” advises investor relations consultant James Bywater. Listing at the wrong time will impact the capital raised.
- Find the Right Investor
Target investors who not only understand your business model, but appreciate it, too. Different markets tend to be centers for specific industries. Just as the Nasdaq Stock Market is known for tech stocks, Singapore is popular for real estate investment trusts (REITs) and Hong Kong for property counters and China plays.
- The Spotlight Can Be Harsh
Bad news can become amplified for publicly listed firms, while good news doesn’t always have the desired effect. When Landing International Development (LID) Chairman Yang Zhihui went missing for three months, shares of the Hong Kong-listed company, which owns Jeju Shinhwa World, plummeted more than 50%. When Yang returned to public view, LID’s share price did not recover.