This article first appeared in The Edge Malaysia Weekly on April 2, 2018 - April 8, 2018

THE rejection by Ekovest Bhd’s shareholders of its proposal to acquire Iskandar Waterfront City Bhd (IWC) last week marks controlling shareholder Tan Sri Lim Kang Hoo’s second attempt to unlock value from the properties held under IWC and its largest shareholder Iskandar Waterfront Holdings Bhd (IWH).

What will Lim do next? Does the tycoon still have an ace up his sleeve to achieve his ultimate goal — unlocking asset values?

“It was purely an investment decision and we took the view that the value at RM28 per sq ft is cheap for this large land bank acquisition,” says Wong Muh Rong of Astramina Advisory, one of Lim’s advisers for the proposed merger between IWC and Ekovest.

“Although the proposal was rejected by minority shareholders of Ekovest, we have at least managed to communicate to our shareholders and potential investors the underlying value of both Ekovest and IWC for investment reference,” she says when contacted by The Edge.

Lim did not respond to questions sent by The Edge.

Looking at Lim’s property businesses, it seems that the huge land banks he owns through IWH and IWC are not generating good earnings for shareholders, at least not now.

IWH is the largest shareholder of IWC with a 38.34% stake.

Lim is the largest shareholder of Ekovest with a direct stake of 20.18% and an indirect 12.19% stake through Ekovest Holdings Sdn Bhd. He also holds 63% of IWH through Credence Resources Sdn Bhd, while the rest is owned by Kumpulan Prasarana Rakyat Johor Sdn Bhd, a state-owned company. IWH owns about 4,300 acres of land, mostly in waterfront areas, in south Johor.

IWC owns about 1,000 acres of land in Tebrau, Johor. The company is in a joint venture with Greenland Group to develop about 127.92 acres. The land is being disposed of to Greenland Tebrau Sdn Bhd (GTSB).

IWC holds a 20% stake in GTSB while Greenland holds the remaining 80%.

Although IWC also has a huge land bank in prime waterfront areas in Johor, it has not been able to develop it quickly, due in part to the slow property market. In the financial year ended Dec 31, 2017, IWC’s earnings was supplemented by land disposals.

Recognition of the land sale to GTSB significantly improved IWC’s property development segment’s profit to RM165.7 million for FY2017, compared with RM1.8 million in FY2016. Without the land deal, IWC could have been in the red.

IWC had total outstanding borrowings of RM238.2 million and trade and other payables of RM546.89 million. On the other hand, the company had cash and bank balances of RM47.5 million, giving it a net debt of RM737.58 million.

There was an increase of 67.28% in IWC’s total borrowings, and trade and other payables increased 23.67%. However, due to an enlarged equity base in the financial year, IWC’s net gearing ratio stayed steady at around 47.5%.

Meanwhile, IWH was in the red at the pretax level in FY2016. It made a pretax loss of RM78.3 million on the back of RM130.3 million in revenue.

IWH was supposed to list in 2015 as the property market in Iskandar Malaysia was still booming. However, as the sizzles fizzled, so did the plan to monetise the land through an initial public offer.

After the direct listing route did not happen, Lim attempted a reverse takeover of IWC by injecting massive land bank owned by IWH as well as some tracts held by himself and members of the Johor royal family.

IWC attracted frenzied interest after IWH proposed a merger through a share swap scheme as investors saw it as a proxy for the great potential in the Bandar Malaysia project located at the former air-force base in the city centre.

IWH then formed a joint venture with China Railway Engineering Corp (M) Sdn Bhd to buy a 60% stake in Bandar Malaysia  project from TRX City Sdn Bhd. The JV, IWH-CREC, had been appointed the master developer of the Bandar Malaysia project, which is touted to have a gross development value of RM200 billion.

Lim then hinted that Bandar Malaysia project could be part of the merger deal. With this,  IWC’s share price rallied and it became the hottest small cap stock in the world. The share price rallied by 96.3% to RM3.22 between March 9, 2017, and May 2, 2017.

The market rejoiced because IWC, regarded as a sleepy counter, could be given a new lease of life through IWH’s stake in the IWH-CREC JV. However, the merger did not happen as the Bandar Malaysia deal was aborted by TRX City. Investors who had been piling into IWC promptly dumped the shares.

While Lim was adamant that the merger deal with IWH would eventually go through, the market considered it as good as under water. On Oct 31, 2017, the proposed merger was aborted.

However, on the same day, Ekovest announced that it had proposed to acquire the remaining 62% stake in IWC not owned by IWH at a cash consideration of RM1.50 per share or a one-to-one share swap. Ekovest built and holds the concession for the Duta-Ulu Klang Expressway.

Both counters slumped on Nov 1, signalling shareholders’ uneasiness over the deal. IWC’s share price fell 7.86% to RM1.29 while Ekovest’s plunged 18% to 93 sen.

Despite the initial reaction, the counters stabilised. IWC’s share price reached RM1.43 on Dec 29, about two months after the proposal was announced, while Ekovest’s increased to RM1.16.

However, to the surprise of many, Ekovest’s minority shareholders rejected the deal during the group’s extraordinary general meeting last Thursday.

Without the Bandar Malaysia deal and with IWC minorities now rejecting the merger with Ekovest, will Lim consider other avenues to unlock asset values?

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