KUALA LUMPUR (May 10): Paramount Corp Bhd (KL:PARAMON) bought a 21.54% stake in Eco World International Bhd (EWI)(KL:EWINT) for RM170.61 million in cash.
Paramount’s wholly owned subsidiary Flexsis Sdn Bhd bought 517 million EWI shares at 33 sen per share from GLL EWI (HK) Ltd — a unit of GuocoLand Ltd that is controlled by Tan Sri Quek Leng Chan — via a direct business transaction on Friday, according to the company’s filing to Bursa Malaysia.
The rationale for the acquisition is to accelerate its overseas expansion and diversification plan, said Paramount in the filing.
The transaction price of 33 sen apiece is at a 8.3% discount to EWI’s closing price on Friday at 36 sen per share.
Over at GuocoLand, the property developer announced to the Singapore Stock Exchange that it has disposed of its entire 27% EWI stake, or 648 million shares, via direct business transaction for S$61 million (RM213.35 million). It did not reveal the buyer of the remaining 5.46% stake in the announcement.
EWI, in a separate statement, said it welcomed Paramount as a new investor in the company and maintained that business will continue as usual.
Upon completion of the acquisition, Paramount's Flexsis will emerge as the second largest shareholder in EWI, after Eco World Capital (International) Sdn Bhd with a 27% stake.
Other substantial shareholders in EWI include Tan Sri Liew Kee Sin, who is the executive vice chairman of the company, with a 10.27% direct stake; and Sinarmas Harta Sdn Bhd, which is ultimately owned by Eco World Development Group Bhd’s (KL:ECOWLD) non-independent non-executive deputy chairman Datuk Leong Kok Wah, with a 3.28% direct stake.
The total cash consideration of RM170.61 million is payable in full on May 14, 2024.
The acquisition will be funded via a combination of bank borrowings and internally generated funds, said Paramount.
Assuming that a borrowing of RM134.9 million is undertaken to partly finance the acquisition, Paramount noted that its borrowings will increase to RM949.18 million, from RM814.26 million as at Dec 31, 2023, while its gearing ratio will be raised to 0.59 from 0.51.
Despite emerging as a major shareholder of EWI, Paramount said it has no direct control over the business and operations of the company, apart from the voting rights from the shares which Paramount can exercise during EWI’s shareholders meetings’ or resolutions.
Nevertheless, Paramount said it intends to seek to nominate representative(s) on the board of EWI in the future, to safeguard its interests in the company.
Since the divestment of its education businesses in 2018, Paramount said it has been on the lookout for opportunities to participate in new business interests for diversification of its earnings base, both locally and outside of Malaysia, all of which are within its 2020-2025 strategic plan.
Since then, it has invested in several startups in the digital space and has expanded its property development activities overseas through a joint venture with a developer in Bangkok, Thailand.
In this case, Paramount said the acquisition of the sizable EWI stake, which is primarily involved in real estate development in the UK and Australia, will accelerate its overseas expansion and diversification plan.
“Currently, this opportunity outweighs all other opportunities available to Paramount for overseas expansion, after taking into consideration the complexities of a direct investment in foreign property development projects,” it said.
“In addition, the acquisition provides an opportunity for Paramount to explore potential collaborations with EWI and its management team to create synergies by leveraging on the respective expertise and experience of both parties as property developers,” Paramount added.
RHB Investment Bank Bhd has been appointed as the principal adviser for the acquisition.
EWI welcomes Paramount as new investor, maintains business as usual
Meanwhile, EWI, in a separate statement, welcomed Paramount as a new investor in the company and maintained that business will continue as usual.
“On behalf of the board of directors, I extend my warm welcome to Paramount as a new investor of the company,” said Cheah Tek Kuang, chairman of EWI.
“Meanwhile, business continues to be carried out as usual. Our group will continue to monetise our inventories with the aim of distributing the excess cash to shareholders as earlier announced,” he added.
Cheah was referring to EWI’s plan to clear its inventory worth RM850 million and distribute excess cash for the financial year ending Oct 31, 2024 (FY2024).
After nine consecutive quarters of losses, EWI returned to the black in its first financial quarter ended Jan 31, 2024 (1QFY2024) with a net profit of RM182,000, compared to a RM30.82 million net loss in the previous year’s corresponding quarter.
Revenue, meanwhile, jumped 41.6% to RM31.67 million from RM22.37 million previously, driven by the sale of higher-priced commercial units.
EWI achieved RM243 million in sales plus reserves of RM203 million, bringing total sales for the first three months of FY2024 to RM446 million, with Embassy Gardens being the largest contributor at RM105 million, followed by RM75 million from Wardian and RM20 million from Yarra One.
On Friday, shares of Paramount gained two sen at RM1.14, with a market capitalisation of RM709.91 million. EWI was up 0.5 sen to close at 36 sen, valuing the company at RM864 million.