IWH-IWCity merger collapse dents confidence
Khairul Khalid 
Lim’s proposal includes Ekovest undertaking a voluntary takeover offer for all shares in IWCity

The aborted merger between Iskandar Waterfront City Bhd (IWCity) and Iskandar Waterfront Holdings Sdn Bhd (IWH), both vehicles of tycoon Tan Sri Lim Kang Hoo, has disappointed investors who had been anticipating the deal since last year.

Lim faces an uphill task in regaining investors’ confidence given the major setbacks in the Bandar Malaysia project in the last two years. IWCity’s shares have plummeted by 56% since the government terminated the Bandar Malaysia agreement with an IWH-led consortium on May 3, when it was trading at RM3.08. It is presently trading at RM1.35.

An analyst says the aborted deal is not entirely surprising after IWH lost the RM150 bil Bandar Malaysia project earlier this year, which was critical to the viability of the proposed merger.

He adds that although IWH was officially dropped from the project in May, there were still some negotiations behind-the-scenes amid hopes that the developer could still play some part in the project. With the cancellation of the merger, it looks like Lim has given up on the project entirely.

“Bottom line, it’s no longer a viable merger after losing Bandar Malaysia. The aborted merger could signal that Lim has given up all hope in the project.

“Although the government had issued a fresh request for proposal (RFP) after IWH was dropped, there were some meetings between IWH and government officials to salvage the deal. Many investors had bought into IWCity based on the potential for this deal (Bandar Malaysia) alone.

“After the Chinese government’s curbs on foreign investment this year, hopes were raised that IWH could return to the Bandar Malaysia fold. If not as the master developer, at least in some capacity. Chances of reviving the deal were slim, but the U-turn on the merger is a clear indication that the deal is dead,” the analyst says.

Sultan of Johor Sultan Ibrahim Sultan Iskandar and Kumpulan Prasarana Rakyat Johor Sdn Bhd (KPRJ) – both closely linked with Lim’s major projects – have also decided to withdraw from injecting land into the proposed IWCity and IWH merger, further damaging its prospects.

“It’s a chicken and egg situation. They could have decided that it’s not worth injecting the land anymore after the Bandar Malaysia loss,” says the analyst.

On Oct 31, IWCity, IWH and construction and infrastructure player Ekovest Bhd – all companies with Lim as the major shareholder and executive chairman – announced a major corporate restructuring exercise. Other than the aborted merger, Lim also proposed that Ekovest undertake a voluntary takeover offer for all shares in IWCity, excluding shares held by controlling shareholder IWH.    

The proposal will involve the company undertaking a conditional voluntary takeover offer to acquire the remaining 62.2% of IWCity for RM1.50 each in cash or for new ordinary Ekovest shares to be issued on the basis of a new Ekovest share for every IWCity share. It is believed that Lim, who owns 38.35% IWCity through IWH, wants to take IWCity private.

The market reacted negatively after the proposals were announced. Ekovest shares fell 18% to 95 sen on Nov 1 while IWCity was down 7.86% to RM1.29.

In response to FocusM’s queries on the proposed restructuring, a representative of IWH says that all necessary announcements on Lim’s proposal will be released via Bursa Malaysia.

“He (Lim) has requested for the relevant companies and board members to devote the next 30 days (i.e. by Nov 30) to formally deliberate the matter. Tan Sri Lim and PAC group (majority shareholders of Ekovest) will abstain from voting in the board and extraordinary general meeting on the proposed reorganisation tabled for their consideration. Please give us the necessary time to engage all required advisors to evaluate the proposal,” he says.

The proposed merger was announced in March involving a share swap agreement that would have valued the joint entity at around RM6.5 bil, which would own up to 1,599.7 ha of prime land.

Although this merger valuation did not include IWH’s 30% stake in Bandar Malaysia, there was expectation that it would increase IWH’s prospects significantly.

Last May, TRX City Sdn Bhd announced that the share sale agreement for the development of the Bandar Malaysia project in Sungai Besi had lapsed and that it was terminating the agreement, claiming that the consortium formed by IWH and China Railway Engineering Corp (M) Sdn Bhd (CREC) had failed to meet the payment obligations despite being granted repeated extensions.

IWH subsequently denied this and stated that it was going to consider its legal options.

In December 2015, IWH-CREC jointly secured rights as the master developer of Bandar Malaysia by acquiring a 60% stake in the project for RM7.41 bil, with the balance held by TRX City.

The joint venture vehicle is called IWH CREC Sdn Bhd (ICSB) with IWH having a 60% stake and CREC 40%. IWH is a public-private partnership between Credence Resources Sdn Bhd (60%) and the Johor state government via state arm KPRJ (40%).

This article first appeared in Focus Malaysia Issue 257.