Back to the drawing board

Shareholders reject proposal by Ekovest’s Lim to re-organise his stable of companies

KUALA LUMPUR: Tan Sri Lim Kang Hoo’s plan to reorganise his companies that are into property development to toll roads and highways failed to garner the support of Ekovest Bhd shareholders.

In a meeting yesterday, shareholders of Ekovest shot down a proposal by the management to acquire Iskandar Waterfront City Bhd (IWC).

The share price of IWC, which had already been falling since Tuesday, fell further by another 13% to RM1.12 per share, while Ekovest’s share price went up to close at RM1.01 apiece.

At an EGM yesterday, 69.2% of Ekovest’s shareholders voted against the proposed takeover of IWC, while 30.8% were in favour.

Under the proposed takeover, Ekovest was offering to buy out 62% of IWC shares. Shareholders of IWC could opt for cash at RM1.50 or a one-for-one share swap.

Kang Hoo is the common shareholder in both Ekovest and IWC. Kang Hoo, who is not offering his 38% in IWC, initiated the corporate exercise to the board of Ekovest in October last year.

In March last year, Kang Hoo had proposed for Iskandar Waterfront Holdings Sdn Bhd (IWH) to take over the listing status of IWC, in a deal that would see the latter with some 7,000 acres of land, largely located in Johor.

At that time, IWH was a favoured entity because of its mandate to develop Bandar Malaysia, the site of the high-speed rail terminal.

However, in May, two months after the proposal, the Ministry of Finance Inc nixed the mandate that was given to a consortium comprising IWH and China Railway Engineering Corp (M) Sdn Bhd.

In October last year, the IWC-IWH merger proposal was called off and a month later, Ekovest proposed to take over the shares in IWC.

The rationale for the latest exercise was to match IWC’s landbank with Ekovest’s cash flow. It was also understood to be part of Kang Hoo’s plan to list Iskandar Waterfront Holdings Bhd in the future.

Notably, Ekovest shares have remained subdued at below the RM1 level following the announcement of the takeover of IWC.

Kang Hoo and parties acting in concert held just above 40% in Ekovest and did not vote in the deal, which was mainly left to the minorities of the company to decide.

The Employees Provident Fund and insurance company AIA are among the larger institutional shareholders in Ekovest.

Speaking at a press conference yesterday following the EGM, Ekovest managing director Tan Sri Lim Keng Cheng said that some of the shareholders wanted the com- pany to focus on the company’s core businesses, which is in construction and infrastructure.

“Some voiced out that they preferred Ekovest to focus on its core business than venture into the property sector,” he told reporters.

Notably, Ekovest has several property development projects in the pipeline located in the Klang Valley.

Additionally, Keng Cheng said the independent adviser had pointed out that Ekovest’s valuation was higher than IWC, hence, the takeover offer that included a shareswap option was not favourable to the shareholders in the former.

“As far as the management is concerned, it is a good deal. But, as the management of Ekovest, we respect the shareholders’ decision,” he said, adding that Ekovest does not plan to make a new offer for IWC.

In the circular to shareholders, Ekovest was valued at between RM3.86 and RM4.08 per share, while IWC’s fair value was at RM3.06 per share.

Additionally, StarBiz understands that minority shareholders were not keen as the landbank would take time to develop and sentiment on property-related investments is poor.

Interestingly, the independent adviser had proposed that Ekovest shareholders accept the offer on the grounds that IWC had landbank of more than 1,000 acres in Johor Baru.

In the proposal, Ekovest shareholders were told that they would get IWC’s landbank at a steep discount of about RM1.24bil or RM28.81 per square foot (psf). The advisers said that the land had a potential market value of RM3.6bil or RM84.49 psf.

Following the failed takeover of IWC, AmInvestment Bank Research has cut its earnings forecast for Ekovest.

In a report, the research house cut its financial year ending Dec 31, 2019 (FY19) and FY20 earnings forecasts for Ekovest by 26% and 21%, respectively.

“Our previous forecasts had consolidated earnings contribution from IWC, as we assumed Ekovest would successfully acquire 62% in IWC, turning it into a subsidiary. We now exclude the earnings from IWC,” it said.

Despite the failed attempt, AmInvest pointed out that Ekovest’s fundamentals remained solid without IWC.

It said that Ekovest had a strong construction earnings visibility underpinned by a sizeable outstanding construction order book of RM13bil, which will keep the company busy for the next three to five years.

The company also has sturdy recurring income from toll concessions spanning until August 2069, and is poised to capitalise on the next property upcycle with its landbank in the vicinity of the River of Life in the Klang Valley area with an estimated gross development value of RM6bil, AmInvest added.