This article first appeared in The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025
IT is extremely rare to find IOI Group, helmed by brothers Datuk Lee Yeow Chor and Lee Yeow Seng, hogging the limelight for the wrong reasons, particularly by getting into a situation where there is a conflict of interest.
That scenario changed on Nov 1, 2023, when Yeow Seng, group chief executive of IOI Properties Group Bhd (KL:IOIPG), bid for the Shenton House redevelopment project in Singapore. It was done in his private capacity through privately owned Shenton 101 Pte Ltd.
A day after submitting the bid, Yeow Seng disclosed to the board of directors his move and the potential conflict of interest. His reasons for going alone and not through IOIPG, which also has a slew of property developments in Singapore, were the size of the acquisition and the tight timeline set by the committee in charge of the sale process.
The deal caught the attention of the market as Yeow Seng emerged as the sole bidder and that he was undertaking the transaction through his private company, and not IOIPG.
This year, the Shenton House project sparked a series of events, ending with Yeow Seng withdrawing a proposal seeking shareholders’ consent to engage in a competing business with IOIPG. The resolution was to be tabled at an extraordinary general meeting (EGM) on Nov 7, but he withdrew a day earlier as institutional shareholders had already voiced their opposition.
The Minority Shareholders Watch Group (MSWG), which generally echoes the position of the Employees Provident Fund (EPF), stated a week before the EGM that it would vote against the resolution because it did not consent to Yeow Seng engaging in a competing business with IOIPG.
Without the support of the provident fund, which has about 8% equity interest in IOIPG, the motion could not be carried through. Hence, it is easy to fathom why Yeow Seng withdrew the proposal a day before the EGM.
Nevertheless, the withdrawal of the motion does not resolve Yeow Seng’s conflict of interest. Towards this end, he stated that as the redevelopment works on Shenton House would only commence in the first quarter of 2027, he would reevaluate all options and take appropriate steps — and if necessary and appropriate, convene a shareholders’ meeting to address the conflict of interest.
Shenton 101 completed the S$538 million (then RM1.9 billion) purchase of Shenton House in June 2024. The property is located in the central business district and occupies 36,000 sq ft of land, with the potential of a 25% bonus in gross floor area.
The redevelopment is anticipated to comprise commercial and hotel components and is scheduled to be completed by the first quarter of 2031. Shenton 101 has stated its intention to hold the property as a long-term investment.
After Yeow Seng completed the purchase in June, the board of IOIPG received a proposal to explore the acquisition of Shenton 101 to mitigate the conflict of interest and align the interest of the group with that of the major shareholder’s private vehicle.
On Aug 28 — a month after getting the proposal from Yeow Seng — the board of directors decided not to accept the proposal on two counts. First, IOIPG was already significantly exposed to the Singapore property market. And second, the company has ongoing capital commitments following the purchase of a slew of properties from Tropicana Group and its founder Tan Sri Danny Tan Chee Sing.
According to the circular to IOIPG shareholders, the existing additional capital commitment for the Shenton House redevelopment project, excluding the development cost that has yet to be finalised, is S$480 million (RM1.6 billion). The additional cost is for land betterment premium, lease top-up premium and stamp duty.
After completing the purchases, estimated at RM1.2 billion, and assuming it would be entirely funded by borrowings, IOIPG’s gearing would rise to 0.74 times from 0.68 times a year ago. Furthermore, Shenton 101 had debt financing of S$414 million (RM1.4 billion), taken to purchase Shenton House, and would need additional bank borrowings for the redevelopment works.
The board anticipated IOIPG’s gearing to increase to as high as 0.9 times if it accepted the deal. After rejecting the proposal, it instead agreed that IOIPG could enter into two management agreements with Shenton 101 in relation to the project. In addition, the board — at the request of Yeow Seng — convened an EGM to seek shareholders’ approval in view of the conflict of interest.
The Singapore real estate market, especially projects in the central business district, has good prospects over the longer term compared with prime property ventures in Malaysia. The superior exchange rate and vibrant migrant population in the city state continue to spur demand for property.
This raises some questions. Why did IOIPG, of which Yeow Seng is group chief executive and principal driver, acquire a series of assets from Tropicana to the extent of stretching its balance sheet? This is considering that both Yeow Seng and the board were already aware of the Shenton House redevelopment project and the likelihood of superior returns over the longer term. And how will the company resolve the matter since its shareholders have not given their consent to Yeow Seng’s conflict of interest?
This saga involving the redevelopment of Shenton House is certainly not over.
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