KUALA LUMPUR (March 7): Tan Sri Lim Kang Hoo, the property tycoon who has been in the news since he bought into 1Malaysia Development Bhd’s Bandar Malaysia project, is said to have shelved plans to list his flagship Iskandar Waterfront Holdings Sdn Bhd (IWH).
Instead, sources familiar with the tycoon said Lim is expected to merge the assets held by IWH with his listed vehicle — Iskandar Waterfront City Bhd (IWC), the share price of which has almost doubled since the beginning of the year.
Through the asset injection exercise, IWH will merge with its subsidiary IWC to form a much bigger property entity that includes an effective 36% stake in the Bandar Malaysia project. The plan would streamline the multilayer shareholding structure.
On top of that, the merged entity is expected to undertake primary and secondary placement, of new and existing shares, to raise funds. The size of the placement is not known, but it would be sufficient to meet the requirement of a minimum 25% public shareholding spread.
Currently, Lim holds a 63.15% stake in IWH through his 90% controlled vehicle, Credence Resources Sdn Bhd, while Kumpulan Prasarana Rakyat Johor Sdn Bhd holds the remaining 36.9% stake. Meanwhile, IWH holds a 47.2% equity interest in IWC.
IWH is substantially bigger than IWC. It is the master developer for 4,300 acres (1,740ha) of mostly reclaimed land in the Danga Bay waterfront city, Johor, plus its stake in the 486-acre Bandar Malaysia development in Sungai Besi, Kuala Lumpur.
The exact valuations for the share swap agreement are expected to be announced later this week. It is understood that the proposed plan is pending the board’s approval.
“The valuations have to be fair to [the] minorities. This deal is a related party transaction, so the controlling shareholders will not be eligible to vote on the deal. [The] minorities will have to decide [on it],” explained the source.
Bankers told The Edge Financial Daily that IWH has received strong interest for the proposed placement of shares in the merged entity. This is due to the strategic location of the land bank as well as the favourable valuations.
It is interesting to note that Khazanah Nasional Bhd and the Employees Provident Fund have substantial shareholdings in some of IWH’s subsidiaries via Iskandar Investment Bhd. This includes IWH subsidiaries like Iskandar Coast Sdn Bhd and Iskandar Waterfront Sdn Bhd.
Looking ahead, it remains to be seen how much IWC shares will be worth when the suspension is lifted on Thursday.
The key will be the valuations for the share swap exercise between IWC and IWH. While the merger will be dilutive for existing minority shareholders, it will also give them access to a much larger pool of assets.
Based on the net acquisition cost alone, IWH’s stake in the Bandar Malaysia project is worth RM3.17 billion. The company has a 60% stake in a joint-venture (JV) company that holds a 60% stake in the Bandar Malaysia project. The total net acquisition cost for the JV company was RM5.3 billion.
On top of that, IWH also has 4,300 acres of land in Johor, of which some have yet to be reclaimed.
Nonetheless, the value of such a massive land bank cannot be unlocked overnight. Like most property developers, land banks are typically valued at a discount to the revised net asset value.
For the financial year ended Dec 31, 2016 (FY16), IWC posted a net loss of RM15 million compared with a net profit of RM6.84 million a year earlier. This was largely due to a sharp fall in revenue in the property development segment, down 86% from RM169.3 million to RM27.4 million.
According to filings with the Companies Commission of Malaysia, IWH posted a profit of RM339.3 million for FY15, against a revenue of RM873.2 million. IWH’s FY16 financials are not available.
Based on the last traded price of RM1.64 last Friday, IWC is currently valued at RM1.35 billion.
This article first appeared in The Edge Financial Daily, on March 7, 2017.