Friday 02 Jun 2023
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This article first appeared in The Edge Malaysia Weekly on November 28, 2022 - December 4, 2022

An auction of property to recover debts is all about the defaulter losing his or her asset. But that is not the case for Tan Sri Lee Kim Yew of Country Heights Holdings Bhd (CHHB).

Two weeks ago, CHHB acquired a property called The Heritage Tower @ Mines Wellness City for RM44.1 million through a public auction. The irony is that the property belonged to a private company linked to Lee that defaulted on a loan of RM93 million.

The property was held by Mines Resort Sdn Bhd and [email protected] Sdn Bhd. Lee is the substantial shareholder of Mines Resort, while Unicorn Legendary Sdn Bhd owns [email protected]

CHHB’s acquisition of the asset effectively means Lee has not lost control of The Heritage Tower as he is a substantial shareholder of the listed property developer. In justifying the purchase, CHHB stated that RM44.1 million is substantially below market price for the property, which generates an annual rental income of RM5.4 million.

While the valuations appear to be reasonable, what caused the loan to go into default in the first place? Why didn’t Lee settle the dues with the bank or work out a solution, considering that it is a yielding asset and an auction would result in a fire sale?

Legally, CHHB can buy the asset as it is not a related party transaction and the deal was done through a public auction. But is it right for the listed company that has many shareholders to buy an asset owned by the major shareholder that is going under the hammer?

Like most other property developers, CHHB holds excessive assets that do not yield the desired cash flow. Its shares are trading at about 15% of its net asset per share of RM2.87. The company’s top and bottom lines have been trending down as there are no new major property launches.

The group has attempted to reposition itself as an e-commerce player following a partnership with last year. The objective is to drive traffic to its e-commerce platform, capitalising on the physical retail stores located in its malls.

But investors are not impressed, as evident from its poor share price performance.

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