Monday, March 23, 2009

Judging The VTO Of IOI Properties

Some have been making noises that IOI Corp's voluntary takeover offer for the remaining 199.7m shares in IOI Prop at RM2.598 disadvantaged the minority shareholders. The deal will be paid via an issuance of 0.6 new IOI Corp shares at RM3.78 and a cash settlement of RM0.33. The VTO is unconditional regardless of acceptance level. The listing status will not be maintained later if everything goes according to plan.

1) Pricing Range: IOI Properties has a 52 week high-low of RM6.37 - RM1.99. Back in 2007 IOI Properties have trade above RM3.00 most of the time anyway. Thus, for IOI Corp to make the VTO now when global share prices are depressed seems to be forcing minority shareholders to sell at a time when many may be holding out for the longer term.

2) Shareholding Structure: IOI Corp already holds 76% of IOI Prop's shares, and that level wasn't achieved overnight. That level of shareholding was there for all to see for a very long time. Investors should have, would have realised that IT IS ONLY A MATTER OF TIME BEFORE IOI Corp takes the whole company private under IOI Corp. Its not a surprise by any stretch of your imagination.

3) A Win-Win Deal: Its a win-win deal because if you think IOI Prop got sold cheaply to IOI Corp (thus favouring IOI Corp), the deal will also means that you will now be holding IOI Corp shares. Although I do feel that the pricing for IOI Corp shares at RM3.78 was a tad unfair to IOI Prop's shareholders. It would have been better and fairer under current conditions to be around 5% lower.

4) Liquidity: Seriously folks, for those minority shareholders of IOI Prop, you know how bad the liquidity is. Its quite senseless to continue harping for the unit to continue to be listed because no liquidity will mean harder to get in and out of the shares. Plus a lack of liquidity will usually means that the "fair value" of the counter will rarely be reached. All detrimental to minority shareholders.

5) Property Exposure: If IOI Prop's minority shareholders look closer at the company's portfolio, it is due for a major downgrade owing to its exposure to Singapore's property market. Its two luxury condo projects in Sentosa Cove may be stressed tested this year, and more diminution in value to come. The company has not made a substantial provision for the Sentosa landbank yet. The Malaysian property side may also see some write downs because there had been revaluation gains of RM250m over the past 2 years, and now the markets is asking for some of that to coughed back up. By being absorbed into IOI Corp, the weaker balance sheet of IOI Prop will not come into focus so much, and will now be able to better ride out the storm with IOI Corp's balance sheet.

Verdict: By and large IOI Corp has treated IOI Prop's minority shareholders fairly, and in fact looking at IOI Prop's exposure and immediate future, I would quietly accept IOI Corp's offer. On IOI Corp's side, the move is smart. The danger could be the perception that it not such a pure plantations play. However, a look at 2008 net profit the two company's figures were 0.39bn / 2.3bn, which showed that IOI Prop only made up some 17% of IOI Corp's net profit (the real percentage figure could be slightly higher as IOI Corp's profit would have included some of IOI Prop's net profit already).

p/s photos: Kim Ha Yool


Maverick said...

I am afraid I completely disagree with you on this one, Dali. If shares are sold through IPO's when the markets are hot at high prices, and lateron when the markets are cold minority shareholders are more or less forced out under the threat of holding shares in a delisted company, then something is very wrong. Malaysia has already a bad name, this exercise wont improve that image. What I miss most is actions from the big boys, EPF, PNB, Valuecap, etc, they should be much more vocal, publicly announce they dont agree with this kind of deals, and state that they wont submit their shares. That would comfort the other shareholders who then also can hold back their shares, and force the major shareholder to come with a more reasonable offer. The thing I like least about this all is that investors only half a year ago paid money for a rights issue, RM 4.85 per share.

Salvatore_Dali said...


its ok to disagree

1) hot IPOs, prices crazy but investors also greedy... you feed off each other... price low, good to privatise... whats wrong with that? if you paid a higher px, well join the queue of 99% of ppl who are holdings shares at much higher px than now

2) the company is not behilden to who buys their shares at what pc... what about those who bot at 6.00... do they have more a case ... you bot at 4.90 because thats the mkt px then, how can u compare to now.... u want the company to pay u 4.90??? well, how long do u think u have to wait for ioi prop to go back to 5.00??? why is that any diff by converting to ioi corp and wait... i guarantee u your wait will be shorter than if u still held onto ioi prop.

3) rights issue at whatever px also meaningless... thats a weak argument

dane said...

G' afternoon dali,

i think IOI Pty ' s fundamental is deteriorated, as its prime landbank in Puchong is fast depletion, they aslo sitting for at least 20% paper loss in overpayment of 2 premium plots of Sentosa Cove land in S'pore, they purchased 1st plot in 07, then 2nd plot in 08, at the peak cycle of pty price in S'pore then, its own portion outlay is closed to RM 2.1 billions; IOI pty is now highly indebtness, i believe IOI corp 's take-over offer is like kind of rescuing operation by injecting much needed cash into them.

Maverick said...

Hi Dali,

No problem.

[1] There is nothing wrong with doing IPO's at high prices, if the demand is there. But there is something very wrong with forcing our minority shareholders at a low price when the market is cold. Just compare it with a private company, can one of the investors suddenly force out another? Market is basically the same, only the shares are listed. Investors should be protected against these actions. If a major shareholder really wants to take over all shares, because he already holds say 90% or so and the market for the share is completely illiquid, then the offer should be very good, so good that about everybody involved finds is more than reasonable.

[2] "you bot at 4.90": just to be sure, I didnt buy anything. People who bought IOI pror bought IOI prop and not IOI corp, they propably had a good reason for that.

[3] Rights issue is for me very important. First shareholders are asked to cough up a huge amount of money, but after the shareprice drops more than 50% you get an offer for your shares under the threat of holding unlisted shares?

Sounds like pretty nasty stuff to me, dude, lucky I dont own any, I would be fuming.

Did you have a look at the shareprice?

Ouch! What a timing to come with a MGO!

Regarding the prospects of IOI prop. In the near future there might be problems, but in the longer run, there might be opportunities. When the company is listed the management sums up all the good stuff about the company, when they want to force out the shareholders with a GO suddenly all is wrong in the company ....

Winston Siew said...

If I were the major shareholder, I won't buy back my own shares if it is not a bargain Period.
I agreed with Maverick, am against VTO when the share price is depressed either by mismanagement or the overall market sentiment. IOI Prop's minority shareholders are indeed screwed.

Nilusha said...

If i am not mistake, big chunk of the IOIP right issue was subscribed by IOIC itself. That's why the shareholding shot up from 68%++ to 75%++.

Yes, the privatisation price seems too low to the MI, but then, from IOIC shareholders perspective, the company actually pay cheap for the prop business.

During the bad times, of course, business man like Tan Sri, will ride on the current weak market. "BUY CHEAP" is always the golden rule for business man, right.

Nilusha said...

I tried to leave my view few times but failed.

Well, i think a big chunk of the IOIP right issue was subscribed by IOIC itself, that's why its shareholding increased from 68% to 75%++.

It's business world, everyone wants to buy cheap....golden rule for business man like Tan Sri. So i wont be surprised by the move. Dali was right. From the announced shareholding in the past, we should have guessed the move.....

Moolah said...

My Dearest Dali,

Why you never ask me to come kaypo?