IWC minorities clear winners in Lim’s latest corporate move

PETALING JAYA: In the world of high finance, there is no such thing as a win-win situation. It’s only a matter of who stands to gain less.

In the proposed takeover by Ekovest Bhd of Iskandar Waterfront City Bhd (IWC), the obvious beneficiaries are the minorities of the latter. Both companies have a common shareholder in Tan Sri Lim Kang Hoo, the entrepreneur who started as a contractor and built an empire in property development.

Lim’s crown jewel is the huge tracts of waterfront land in Johor Baru, which has gained traction due to its proximity to Singapore. He has proposed that Ekovest makes an offer for 62% of IWC.

If the deal happens, then Ekovest would potentially be owning the asset-heavy IWC, which has land but will take a long time to develop it. Also, Ekovest could potentially see a drain of up to RM725mil in its cash coffers if minorities of IWC opt for the cash option in the proposed takeover.

The stock market has punished Ekovest, which is down more than 20% after it resumed trading.

Ironically, Lim and parties related to him are the biggest shareholders of Ekovest, holding more than 50%. On paper, Lim would have lost more than RM200mil after the announcement because of the decline in Ekovest’s market capitalisation.

It is hard to understand why Lim has agreed to a proposal that would see his wealth reducing. And this is the second corporate exercise involving IWC, which only in May this year hit a high of RM3.22 per share.

Why is Lim appeasing IWC’s minorities and giving them an exit just three months after he lost the Bandar Malaysia deal?

The dust has not even settled on the group’s setback in the Bandar Malaysia deal.

In May, IWC was seen as the main beneficiary of a proposal that its parent company, Iskandar Waterfront Holdings Sdn Bhd (IWH), would take over its listing status. The proposal thrust IWC into the role of proxy to the Bandar Malaysia property play.

In December 2016, IWH was awarded the job to develop Bandar Malaysia with China Railway Engineering Corp (CREC). However, in August this year, the Finance Ministry withdrew the award on the grounds that the IWH-CREC joint venture had failed to meet its scheduled payment obligations.

Since then, IWC has gone into a tailspin, leaving its shareholders in a daze.

The latest offer is a way out for crestfallen IWC minorities wanting to exit.

They have an option of getting RM1.50 cash per share or Ekovest shares, priced at RM1.50.

IWH is IWC’s biggest shareholder with 38% and it is not accepting Ekovest’s offer. However, the rest of the shareholders would likely take it up because it is a way out for them after the Bandar Malaysia episode.

Going by the drop in the share price of Ekovest, IWC minorities should opt for the cash option.

As for Ekovest, if the deal goes through, then the construction and infrastructure company would be left holding as much as 62% of IWC, whose biggest appeal is 1,052 acres of waterfront land in Johor Baru.

IWC is a master developer and makes its money from selling land that it reclaims from the sea. The business model involves capital upfront, which the company recoups over time through the sale of land for development.

However, the cash comes from lumpy payments, unlike the conventional property developers who see steady cash flows from the sale of houses.

The upside for Ekovest is the future listing of IWH, which is a longer-term investment. It will also be holding huge tracts of waterfront land at a cheap cost.

Value from holding the land can only be recovered over the long term unless the listing of IWH takes place next year as scheduled.