WHILE there may be holders of Ekovest Bhd stock who believe their company is being used to rescue Iskandar Waterfront City Bhd (IWC), the major owner of both entities, Tan Sri Lim Kang Hoo begs to differ.
For one, master developer IWC is turning profitable in its upcoming third quarter to September, he says.
“IWC will be turning around. There are also cashflows coming in from IWC’s existing property business and the payment from the land we sold to the Greenland Group. The first payment for Lot 1A has come in on July 15. That will be reflected in our September results,” says Lim.
“The vendor is the Shanghai government, so these are solid paymasters. They will be paying us in tranches from now until May 2020,” he adds.
“People think Ekovest is wasting RM782mil to pay the IWC minority shareholders RM1.50 per share, should all of them accept the cash offer. Hey, Me and my related parties control more than 50% of Ekovest. I won’t kill myself,” says Lim.
Lim owns both IWC and Ekovest.
On Tuesday, Lim announced a plan for Ekovest to buy out the minorities of IWC at RM1.50 per share, a move which sent both stocks down although the shares have stabilised since then.
Lim controls more than 50% of Ekovest and 38% of IWH.
For the second quarter to June 30, IWC turned around with a small profit of RM147,000 from a previous loss of RM3.82mil. Revenue dropped to RM12.51mil from RM21.41mil previously.
For the six-month period, it recorded losses of RM56.31mil from a previous loss of RM8.61mil. This was on the back of 11.07% drop in revenue to RM26.16mil.
As for the Greenland deal, recall that 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 a RM1.2bil profit, or RM1.80 per share, from the disposal of land to special-purpose vehicle 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).
GTSB will be paying IWC in tranches.
Based on the schedule of payments starting July 15, 2017 until May 5, 2020, GTSB needs to pay a grand total of RM2.13bil. The first payment of RM46.32mil for Lot 1A was completed on July 15. The entire Lot 1A will be completely paid by July 15, 2018, and cumulatively, IWC should have received RM231.62mil by then.
China-based Greenland is also IWC’s partner in a waterfront city project in Johor with an estimated gross development value of RM18.4bil.
For IWC minority shareholders who have felt all was lost since the Finance Ministry terminated Iskandar Waterfront Holdings Sdn Bhd (IWH) as the master developer of Bandar Malaysia in May, there is now an exit plan for them.
There was turmoil earlier in the week when Lim first proposed a restructuring exercise for his listed companies by recommending that his construction and highway outfit Ekovest launch a takeover of his property company IWC at RM1.50 per share of the latter.
Lim’s earlier plan of injecting his unlisted master developer company IWH into IWC was also being called off.
The new proposal will turn Ekovest into a major property player, considering the vast land bank it will own if it buys IWC.
Ekovest will buy over the 62% of IWC shares owned by minorities, at a cost of RM1.50. There are two options for shareholders – they can either exchange their IWC shares for cash of RM1.50, or swap their shares for an Ekovest share valued at RM1.50.
“The buyout of the minority shareholders of IWC is an earnings accretive deal for Ekovest. It is not earnings dilutive. It is an investment for Ekovest, and it will also be able to participate in the many construction jobs required by IWC over the next 20 years,” says Lim.
Also, Lim says, Ekovest has a strong enough balance sheet and is more than able to secure bank borrowings to fund the RM782mil needed to pay the IWC minorities.
“With regard to financing, we do not foresee any hurdle, given the robust balance sheet of Ekovest. Ekovest currently has a shareholders’ fund of RM1.9bil, cash and cash equivalents of RM4.5bil and total borrowings of RM6.4bil.
“This makes up the net gearing of Ekovest, which stands at one time. Thus, Ekovest is backed by strong equity in the event of any future financing,” says Lim.
At the same time, he intends to deliver strong and valuable investment opportunities to Ekovest.
“We are paying minority shareholders RM1.50 in cash, because this was the valuation first touted when the merger between IWC and IWH was announced.
“Back then, we said we would issue 5 bilion shares at RM1.50. So we are sticking to that valuation. I would have loved to offer RM1 or RM1.20 instead. But we need to be fair to our shareholders. We are now giving them a chance to exit if they want,” he says.
Lim’s explanation is timely as earlier in the week, the share price of both Ekovest and IWC took a hit upon the resumption of trading on Wednesday
Ekovest shares fell by some 21 sen to close at 95 sen on heavy volume, while IWC shares fell by some 11 sen to RM1.29. As of Thursday, there was some calm as both shares turned green.
Since Tuesday, Lim and his advisers have been busy meeting the largest shareholders of both Ekovest and IWC to explain the dynamics of the deal. As of yesterday, the share price of both companies have recovered slightly.
In fact, there is also a trading opportunity as Ekovest shares, which are currently priced at 99 sen, should theoretically be trading at RM1.50 should shareholders decide to exchange their IWC shares for Ekovest shares instead.
On a more fundamental note, Lim adds that quietly, the property market in Iskandar has been improving.
More importantly, IWH is IPO ready. It was meant to go for a listing and will still be going for its listing.
“All the valuations on our 1,052 acres of waterfront land bank have been completed. We plan to eventually list IWH. It’s a matter of where and when,” says Lim.