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