What will Lim do next?
All eyes on Kang Hoo’s next move after two failed attempts to restructure IWC
PLANS by businessman Tan Sri Lim Kang Hoo to reorganise his companies has hit another setback.
The recent plan, which involves his construction and highway outfit Ekovest Bhd taking over his property company Iskandar Waterfront City Bhd (IWC), failed to gain support from the former’s minority shareholders at an EGM held on Thursday.
This plan by Kang Hoo had come about after an earlier one last year.
Then, he had sought to use his privately held Iskandar Waterfront Holdings Sdn Bhd (IWH) to take over the listing status of IWC, a plan which he had revealed last March.
At that time, IWH was a favoured entity because of its mandate to develop Bandar Malaysia, the site of the high-speed rail or HSR 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.
Hence 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.
Central to the deal was the valuation of IWC’s 1,000-plus acres of land in Johor and whether minority shareholders of Ekovest believed they could gain some future value from that land.
At the EGM, which was held on Thursday morning, 69.2% of Ekovest shareholders voted against the proposed takeover of IWC, while 30.8% were in favour.
Kang Hoo and parties acting in concert who control just more than 50% of Ekovest are deemed as interested parties and as such did not vote.
To be sure, even prior to the EGM, there were signs that Ekovest’s minority shareholders would reject the proposal.
Three days prior to the EGM, the shares of Ekovest went up almost 3%, while IWC’s dropped by 9%.
Dealers had said this was the market already pricing in the outcome.
Another interesting fact is this – the offer letter to IWC shareholders to subscribe to the offer by Ekovest was distributed on March 12, which was two weeks prior to the meeting for Ekovest shareholders to vote on whether they wanted their company to buy IWC.
Some would argue that this was unorthodox. Why would the offer letter be dispatched to IWC shareholders prior to Ekovest shareholders approving the deal?
The proposal was for Ekovest to buy out 62% of IWC’s equity which is not owned by Kang Hoo.
Shareholders of IWC could opt for a cash payout at a price of RM1.50 per share or accept a one-for-one share swap.
Under the offer letter, shareholders of IWC had until April 2 to accept the offer by Ekovest.
As such, many IWC shareholders would have already submitted their application prior to the Ekovest EGM, which, in turn, could have driven up the share price of IWC.
After the meeting on Thursday, shares in IWC plunged by more than 16% to close at RM1.06 yesterday.
What’s next?
After the two corporate exercises by Kang Hoo to restructure his flagship property development company IWC have not come to fruition, the question is what is his next plan?
An analyst who follows Kang Hoo’s movements closely suggests that he could now seek to take IWC private and merge it with the privately held IWH. IWH is the parent of IWC and is the master developer of the land IWC owns in Johor.
IWH is 63%-owned by Kang Hoo through his private company, Credence Resources Sdn Bhd, while the remaining shares are held by Kumpulan Prasarana Rakyat Johor.
Later, Kang Hoo could seek an initial public offering of this group, and raise fresh funds to support its property development projects.
On the back of the envelope calculations, the deal would cost Kang Hoo about RM554mil for the 62% he does not own in IWC, based on the latter’s current share price at RM1.07.
While the shareholders of Ekovest are not keen on the acquisition of IWC, the management of Ekovest reiterated that it was a good deal for the company.
Speaking at a press conference yesterday following the EGM, Ekovest managing director Tan Sri Lim Keng Cheng said: “As far as the management is concerned, it is a good deal. But, as the management of Ekovest, we respect the shareholders’ decision.”
Additionally, Keng Cheng said the inde- pendent adviser had pointed out that Ekovest’s valuation was higher than IWC, and hence, the takeover offer that included a share-swap option was not favourable to the shareholders of Ekovest.
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.
It also said that there may be holders of Ekovest stock who believe their company is being used to rescue IWC.
However, it is worth noting that IWC has turned around from the third quarter ended Sept 30, 2017.
For the fourth quarter to Dec 31, 2017, IWC recorded a net profit of RM14.92mil from a loss of RM3.83mil in the same period of the previous year.
Revenue was slightly lower at RM25.43mil from RM30.64mil previously.
For the full year, IWC recorded a net profit of RM48.12mil from a previous loss of RM16.03mil. Revenue increased more than threefold to RM271.78mil from RM76.6mil previously.
Another positive for IWC is the Greenland deal, first inked back in 2015.
IWC had proposed to sell three pieces of land measuring 51.8ha in Plentong, Johor, held by IWC subsidiary Tebrau Bay Sdn Bhd, to Greenland Tebrau Sdn Bhd (GTSB), for RM2.37bil cash.
IWC said it would book an RM1.2bil profit, or RM1.80 per share, from the disposal of land to GTSB.
GTSB is 20% owned by IWC (through unit Southern Crest Development Sdn Bhd) and 80% by the Greenland group (via Greenland Malaysia Real Estate Operator Sdn Bhd).
However, the extension of the payment dates has raised concern among the Ekovest shareholders to vote on the deal.
The last one year has not been easy for Kang Hoo in reorganising his companies.
Nonetheless, going by the close timeline between the two deals, there is a possibility that Kang Hoo could be hatching a new proposal soon.