Big Ouch For IOI Properties!
Wednesday, February 4, 2009
January 9th 2008, IOI Properties made the following announcement: PROPOSED ACQUISITION OF 5.3 ACRE 99-YEAR LEASEHOLD LAND PARCEL (IDENTIFIED AS “THE PINNACLE COLLECTION”) LOCATED AT SENTOSA COVE, SINGAPORE (“PROPOSED ACQUISITION”)
And the following was from a news article posted on Business Times.
- IOI Properties wins Sentosa land bid
The property arm of IOI Corp and its Singaporean partner, Ho Bee Investment, will build a 20-storey condominium in Sentosa Cove
By Hamisah Hamid Published: 2008/01/10
IOI Properties Bhd and Ho Bee Investment Ltd have won a bid to buy land on the resort island of Sentosa, Singapore, for S$1.097 billion (RM2.5 billion).
IOI Properties, a unit of planter IOI Corp Bhd, and its Singaporean partner will build a 20-storey condominium on the 2.12ha site in Sentosa Cove.
Sentosa Cove is a marina resort and waterfront housing project on Sentosa island.
IOI Properties is expanding into Singapore where properties are highly sought after in the region, the company said in a statement to Bursa Malaysia yesterday.
The successful bid is also its second win. In March last year, IOI Properties and Ho Bee won a bid to buy land on the island for RM1.1 billion.
IOI Properties' Singapore unit received a letter of acceptance yesterday from Sentosa Cove Pte Ltd on behalf of Sentosa Development Corp (SDC)....
Massive project which was well received by many local analysts. The following notes are taken from a RHB Research writeup.
- Share Price : RM13.20
Fair Value : RM14.64
Recom : Market Perform (Maintained)
♦ Another land in Sentosa Cove. IOI prop announced that its 65:35 JV with Ho Bee Investment Limited has successfully secured a 5.3 acres 99-year leasehold land in Sentosa Cove for a total cash consideration of S$1.1bn (or RM2.5bn) or about S$1828.4 psf per plot ratio (ppr). The proposed acquisition is expected to be completed in 2Q08.
♦ About the land. The land (also identified as ‘The Pinnacle Collection’), which is close to the group’s current project i.e. Seaview Collection in Sentosa Cove, is the last piece of condominium land parcel to be launched by Sentosa Cove. It is one of the two condominium parcels, which flanks the entrance of the marina leading into Sentosa Cove. With up to 20-storey condominium, The Pinnacle Collection will be the tallest building within Sentosa Cove. Maximum number of units allowed in this development is 357 units whilst maximum permissible gross floor area is 602,359 sq.ft. (which translates into a maximum permissible plot ratio of 2.6). Upon completion, the building will offer panoramic views of the South China Sea, the Southern Islands, Tanjong Golf Course and the city skyline.
♦ We are positive on the deal given two key reasons: a) Fair price. We consider the purchase price of S$1,828.4 psf ppr to be fair given the booming property market in Singapore and development of an IR on the island as well as recent transaction price of about S$1,800-3,300 psf ppr around the area; and b) enables the group to further diversify its existing land-bank and earnings base geographically.
♦ Another earnings booster… According to Starbiz dated 10 Jan 08, the company expects the project to churn out an estimated GDV of close to S$2bn (or about S$3,700 psf based on maximum permissible gross floor area of 602,359 sq.ft. and 90% efficiency rate) and will start contributing from FY06/09 onwards. To be conservative, we have assumed a lower selling price of S$3,000 psf, which translates into a GDV of S$1.6bn (based on 90% efficiency). Assuming profit margin of 20% over 3-4 years, our back-of-envelop calculation suggests that the project may boost our FY10 earnings forecast by circa 6%. However, we have yet to incorporate the project into our earnings forecasts pending further details from the management.
♦ Niche high-end projects in Sentosa Cove will boost the group’s earnings. Together with Seaview collection (which we have already incorporated into our earnings projection), the two projects in Sentosa Cove are expected to boost the group’s FY09-10 earnings by 13-17%.
♦ … but high gearing level. As at Sept, the group has net debt of RM280.2m (or net gearing of 0.13x). Post the acquisition, its net debt position would potentially increase to RM1.6bn (equity account of 65% of the debt and assuming 80% financed by debt) or net gearing of 0.73x. However, we are not overly concerned as the increase is due to the two new Sentosa Cove projects. Moreover, with existing sustainable strong cash flow, the net gearing would reduce over time, especially after the launch and sale of the two Sentosa Cove projects.
♦ Maintain earning forecast pending further details (i.e. estimated GDV, profit margin, debt structure etc) from the management. Our indicative fair value is unchanged at RM14.64, based on 14x CY08 EPS. This represents a potential upside of 11%, which is in line with market return. Hence, we are maintaining our Market Perform rating on the stock. The company is backed by RNAV/share of RM14.95.
A 1 into 2 stock split followed by a 1 for 4 rights issue at an issuance price of 4.85.
Now indulge in me and assume that as per RHB's article reference price of 13.20 and assuming that one had purchase 2000 shares of IOIP at 13.20, one's investment outlay would be 26400. (all incidental costs are ignored for simplicity sake!) After the 1 into 2 stock split, one would have 4000 shares and assuming that one take up the rights issue at 4.85, one is now holding 5000 shares of IOIP with an investment outlay of 31250 or a cost per share of 6.25.
Now consider this.
Back in January there were rumours spit out on the street that IOI Properties could be taken private. And of course the stock soared with IOI Corporation denying all rumours.
See No plans to take property unit private: IOI Corp
- SHARES of IOI Properties Bhd rose as much as 8.3 per cent or RM1.10 yesterday, fuelled by a privatisation rumour which was promptly denied by the company.
There was speculation that IOI Corp Bhd, which holds about 70 per cent of IOI Properties, could take its subsidiary private, offering RM15 a share.
At that price, it would cost IOI Corp about RM1.5 billion to buy the remaining shares it does not own.
"It's not true. There's no such thing going on in the company," said a company spokesperson when contacted.
Shares of IOI Properties rose as high as RM14.20, before closing 6.1 per cent higher, or 80 sen, at RM13.90.
Recently, IOI Prop and Ho Bee Investment Ltd won a bid to buy land on the resort island of Sentosa, Singapore, for S$1.097 billion (RM2.5 billion).
- By Francis Fernandez Published: 2008/07/02
IOI Corp can choose to privatise IOI Properties at a minimum price of RM4.85, says a research analyst with Credit Suisse
IOI Corp Bhd, Malaysia's second most valuable firm, may take its property arm private, make fresh purchases or give its convertible bondholders treasury shares, three foreign investment firms speculate.
Credit Suisse said in a report that there was a high chance of IOI Corp privatising IOI Properties Bhd (IOI Prop) if the latter's rights issue was grossly undersubscribed.
In February, IOI Prop said it planned to raise as much as RM932 million, with its parent underwriting the issue.
"As IOI Corp is underwriting the deal, then IOI Corp may end up with more than 75 per cent of IOI Prop. Although there are other options, IOI Corp can choose to privatise IOI Prop at this juncture, at a minimum price of RM4.85," wrote Tan Ting Min, a research analyst.
Doing so would cost its parent some RM1.1 billion and improve its earnings next year by as much as four per cent, the research house said.
In the year to June 30 2007, IOI Corp made a net income of RM1.48 billion.
In another report, Citigroup said that IOI Corp was on the lookout for new investment opportunities.
Over the past eight years, IOI Corp has pumped in more than RM3 billion to take IOI Oleochemical Bhd private, buy the India-based Aditya Birla's edible oil and oleochemical units in Johor, and acquire 100 per cent of Loders Croklaan BV and its related businesses in the US, Canada and Egypt from the Unilever group.
The purchases have made IOI Corp the world's largest oleochemical group.
Merrill Lynch expects the group to use its treasury shares, stocks bought under buyback exercises, to enhance value. In the first half of this year, IOI Corp paid some RM1.2 billion to buy its own shares.
"The highest form of value-enhancement would be to cancel the shares bought back, or it could issue shares to the CB (convertible bond) holders via the shares bought back, thus mitigating any dilution arising from the conversion," Merrill Lynch's Andrew Lee wrote in a report.
IOI Corp currently has a US$360 million (RM1.2 billion) convertible bond due in 2011, with a conversion price of RM4.70 a share, and a US$600 million (RM2 billion) convertible bond due in 2013, with a conversion price of RM11 a share.
Note how the cost of privatisation is now around 1.1 billion as speculated by Credit Suisse in its report.
Fast forward today. IOI Corp to buy out property arm- By Chong Pooi KoonPublished: 2009/02/05
Planter IOI Corp Bhd (1961) plans to pay RM506 million, or RM2.60 a share in a cash-and-share deal to buy out IOI Properties Bhd before taking it private, the company said yesterday.
IOI Corp now holds 76 per cent of IOI Properties, and it has offered 33 sen cash and 0.6 new share for every share that it does not own in the builder.
The offer values IOI Properties at 0.66 time of its net assets per share of RM3.95 as at September last year.
IOI Corp will pay for the cash portion with internal funds or borrowings, the company said in a Bursa Malaysia announcement yesterday evening.
Analysts said IOI Corp can comfortably manage the cash offer since it is sitting on a cashpile of RM1.4 billion with net gearing of 46 per cent as of September last year.
"We believe privatisation would make sense given that IOI Properties is illiquid with 24 per cent held by minorities, of which close to 10 per cent is owned by state-linked funds like Valuecap and the Employees Provident Fund," Citigroup analyst Penny Yaw wrote in a report on Tuesday before the deal was announced.
"Moreover, IOI Properties is trading at a steep discount to its net asset per share of RM3.95," Citigroup said.
The privatisation was widely speculated after both companies requested for trading in their shares to be halted last Friday. Trading in both counters will resume today.
Shares of IOI Properties were last traded at RM2.22 before the trading suspension, while IOI Corp ended at RM3.92.
IOI Corp said a full control in IOI Properties will give it greater room to plot the future of the property arm and let it streamline the plantation and property business.
IOI Properties' public spread has also fallen below the 25 per cent required of a listed company since July last year, and the weak stock market has made it hard to rectify the shortfall, the company said.
The deal also allows IOI Properties investors to swap the illiquid shares into more actively traded IOI Corp, the company said.
The takeover still needs the authorities approval and IOI Corp shareholders' greenlight.
From a buyout option mooted last January costing about 1.5 billion, the buyout option now only cost around 506 million!!!!
Smart move, eh?
However, do spare a moment of silent for them IOI Properties shareholders!
I do remember some smartie pants often suggesting that it's profitable to speculate on companies been taken private by their holding companies.
In IOI Properties, we have the best example.
Company was going great guns back in January last year. Speculations of privatisation was there!And if one had speculated at IOI Properties at a price of 6.25 (based on my earlier calculations), this speculation which did panned out as speculated, is turning out to be a disastrous speculation since IOI Corporation offer is only 2.60 per share! Ouch!
Have a look at the following chart. The footprint shows where IOI Properties was trading back on January 2008.
Look at where IOI Properties is at now.
Ouch!
And the offer of rm2.60 per share for its minority shareholders?
Ouch! Ouch! Ouch!
ps. here is a snapshot of Aseambankers notes on IOI Properties.
Look at comments pointed by the arrow.... forcefully delist!!!
Forcefully delist!
That's the unfair game when a listed company wants to privatise its listed subsidiary!
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