HOT as Gallant Venture's IPO may be, potential subscribers might be well advised to thoroughly go through the risks involved in the company before they put their money into its shares.

Gallant, which owns property development, utility, resort and industrial park businesses in the Riau islands of Bintan and Batam, is expected to make its Sesdaq debut next month. In the meantime, major shareholder Parallax Venture Partners XXX, a member of Indonesia's Salim group, is placing out 280 million existing shares, representing 11.6 per cent of Gallant's total share capital of 2.41 billion shares, at 50 cents apiece. There will be a further transfer by another Salim-linked shareholder, PT Herwido Rintis (PT HR), which will involve 25.05 million shares.

Since the placement and share transfer represent less than 12 per cent of Gallant's total share capital, the offering does not qualify for a place on the Singapore Exchange's main board. As the main board is more liquid than Sesdaq, why didn't the offerors place out sufficient shares to trade on the main board?

Gallant's main shareholders following the share transactions will be the Salim group's Parallax with 26.02 per cent, SembCorp Industries' subsidiary SembPark Holdings with 26.84 per cent, PT HR with 21.03 per cent, and Singapore's Ascendas group with 7.32 per cent.

According to the company's prospectus, Gallant's industrial parks business owns and operates 63 hectares of net lettable area said to be worth about $442 million on the two islands. Its utilities business developed at a cost of some $409 million provides telecoms, electricity, water supply and waste management services to the two islands.

The resort business provides one-stop support services - including ferry services, ferry terminal operations, estate management and security, fire-fighting and medical services - to the four resorts and seven hotel properties in Bintan Resorts.

Its hidden jewel is said to be the property development business, which owns the land and acts as the masterplanner for the industrial parks and resorts. It has a huge land bank of about 18,200 ha (about a quarter Singapore's size), supposedly valued at $3 per square metre or about $541 million.

Gallant justifies its eye-popping price-earnings ratio of 94 times historic earnings by pointing to the potential sales of its property development business. However, 14,400 ha is earmarked for resort, commercial and residential development, while another 3,800 ha is meant for industrial parks.

All the land is on leasehold, with an initial period of 30 years which can be extended by another 20 years and further renewed by another 30 years, subject to various conditions under Indonesian law.

The company has obtained a waiver from an exchange proviso which requires that properties that have remaining leaseholds of less than 30 years form no more than half the group's operating profits for the last three years.

Furthermore, the resorts of the two islands are not exactly doing all that well. Several years ago, Bintan Lagoon Resort, which is one of the assets listed in the prospectus (and previously owned by mainly Singapore Temasek-linked companies) defaulted on a $53 million loan. There are also already a significant number of unoccupied properties in Gallant's portfolio, and more companies appear to be leaving the industrial parks than going in.

Another telling point: the Bintan and Batam assets appear to have been hardly worth a mention in SembCorp Industries' latest annual report.