Syed Mokhtar a key player in ECW-UEMS merger?

By Emmanuel Samarathisa

Three years ago, Tan Sri Liew Kee Sin was a jubilant man. After getting out of a corporate tussle involving property giant SP Setia Bhd, he immediately found his footing and made a mercurial comeback through a pair of property ventures: EcoWorld Development Group Bhd (ECWD) and its sister EcoWorld International Bhd (ECWI).

Such was the brisk growth of the EcoWorld group of companies that Liew was confident of fielding questions from the local press. That was what he did on Jan 23, 2016. Among the earliest questions posed to Liew was how he obtained a plot of land for his maiden development.

Without hesitation, the property developer name-dropped one of the most important figures in Corporate Malaysia: Tan Sri Syed Mokhtar Albukhary.

Liew was quoted in a local newspaper as saying: “When I came out of SP Setia, I was given an opportunity to buy land from him. He offered me two parcels of land in Johor – parked under DRB-Hicom Bhd and Tradewinds Corp Bhd.

“He sold me huge parcels of land next to Nusajaya and Tebrau in Johor. But he is a very smart entrepreneur. He owned 402ha but sold me only 281.4ha and kept the rest,” he said.

He would go on to add that the right partnerships were crucial because “in today’s world, you can’t only think of yourself… Thank goodness. We have good partners for all our projects.”

The makings of a mega-merger

Naturally such a prominent partnership will be the talk of the local scuttlebutt. What’s more, Syed Mokhtar and Liew control more than 50% of mothership ECWD.

Now, punters have been speculating for yonks the links between Syed Mokhtar’s and Liew’s business dealings, especially with ECWD and ECWI. But such chatter dialled up a notch as the duo recently emerged as spearheading a purported merger between ECW group of companies and UEM Sunrise Bhd (UEMS).

The talk is that both ECWD and ECWI will be merged with UEMS. The latter will take the lead in the merger and will have a larger stake but with Liew and his partners having management control. Syed Mokhtar is allegedly influencing such talk with an aim to complete the merger due to his close association with Prime Minister Tun Dr Mahathir Mohamad as well as Liew and the main shareholders of ECWD and ECWI.

Mahathir’s involvement here comes by way of his chairmanship of Khazanah Nasional Bhd. The sovereign wealth fund owns UEM Group Bhd which in turn controls UEM Sunrise with a 76.1% stake.

Sources familiar with the matter say Syed Mokhtar and Liew might have been pushing for the deal. “That is part of business. And, yes, the Syed Mokhtar factor might be the ‘catalyst’ for the merger.”

But one corporate insider is not surprised at these developments. “If true, then this is normal. You should remember that Liew and Syed Mokhtar’s relationship goes back a long way, even during Liew’s career with SP Setia. Liew, Syed Mokhtar and (Tan Sri) Abdul Rashid Manaf. They were part of Tun Mahathir’s circle,” she tells FocusM.

Rashid was chairman of SP Setia (1997-2012) when Liew was CEO of the company. Naturally, the former has been earmarked as an ally and trusted business associate of the latter – he owns 85% of Eco World Development Sdn Bhd which owns 7.24% and 0.92% in ECWD and ECWI, respectively.

A byzantine connection

But Liew’s tenure at SP Setia was actually one of the earliest instances of his relationship with Syed Mokhtar. For example, SP Setia purchased 360ha in Johor in 1999 from Syed Mokhtar’s private vehicle Kelana Ventures Sdn Bhd for RM11.06 mil.

SP Setia also entered into a 50:50 partnership with Syed Mokhtar-controlled Tradewinds to build cheap housing under the now defunct 1Malaysia People’s Housing Programme (PR1MA) in Taman Ikan Emas, Cheras.

That said, Syed Mokhtar’s relationship in the ECW group is markedly different. To be sure, charting Syed Mokhtar’s presence in both ECWs, or in any company for that matter, is a byzantine affair as the tycoon hides behind layers of proxies and shell companies.

In this case, the first place to begin is unpacking private companies Sinarmas Harta Sdn Bhd and Sigma Seleksi Sdn Bhd. Sinarmas and Sigma Seleksi own 32.94% and 3.28% in ECWD and 3.28% and 0.28% in ECWI respectively. Sinarmas is ECWD’s largest shareholder and is owned by Syabas Tropikal Sdn Bhd which in turn is held by ECWD deputy chairman Datuk Leong Kok Wah (99.99%) and Fisool Musa (one nominal share).

At this stage, the link Sinarmas and Sigma Seleksi have with Syed Mokhtar is that both companies share the same business addresses with companies directly held by the tycoon such as private vehicles Restu Jernih Sdn Bhd and Perspective Lane (M) Sdn Bhd.

Next is Leong’s relationship with Syed Mokhtar. The former is known as a confidant of both Syed Mokhtar and Liew. Industry sources say Leong is akin to the gel between the two and he is believed to hold a majority shareholding in Syabas Tropikal on behalf of Syed Mokhtar.

“I believe this was the arrangement when Liew wanted to debut with EcoWorld. Note that Leong and (Tan Sri Abdul) Rashid (Manaf) played an important role in securing the maiden plot of land from Syed Mokhtar,” says a source familiar with the initial dealings of ECWD.

But Leong’s relationship is further substantiated by the fact that he was a shareholder of Tradewinds Plantations Bhd. The Tradewinds brand has been synonymous with the Syed Mokhtar clan. The company is owned by Perspective Lane and counts Syed Mokhtar’s son Syed Danial Syed Mokhtar among its directors.

Sigma Seleksi, on the other hand, has smaller stakes in both EcoWorlds. But one of its shareholders, Azhar Mohd Awal, is the chief financial officer of PNMB, which is wholly owned by Syed Mokhtar.

MGO in the making?

PNMB has been labelled a bastion for many of Syed Mokhtar’s lieutenants. Case in point, the appointment of Mohamad Abdullah as director of media giant Media Prima Bhd, which is controlled by Syed Mokhtar. Mohamad is the managing director of PNMB and was chairman of TMR Media Sdn Bhd – the publisher of The Malaysian Reserve.

What is Syed Mokhtar’s endgame with both EcoWorlds or the merger with UEMS is unknown. But a source familiar with the tycoon’s business dealings says it is common for him to flirt with triggering a mandatory general offer (MGO).

“That is why Sinarmas, despite having 32.94% in EcoWorld, has not pushed the MGO button. Of course, Leong is there as majority owner of Sinarmas and that is part of the plan, just like what he is doing with Media Prima.”

To issue an MGO, a shareholder has to breach the threshold of 33% or be in a position to control the majority of the board of directors. Syed Mokhtar, through his vehicle Aurora Mulia Sdn Bhd, owns 31.9% of Media Prima.

But being the largest shareholder of ECWD, albeit indirectly, puts him in an advantageous position. If these assumptions hold water, Syed Mokhtar’s interests will put him in the driver’s seat with a 35.79% stake, hence the conclusion that he is spearheading the UEMS-ECW merger. Some say he could not only benefit from an entity that has a larger landbank but also the possibility of injecting some of his land assets into the merged company.

Endless possibilities

It is estimated that if a UEMS-ECW merger happens, a mammoth entity will be born with a sizeable landbank of 7,284ha and branding, second only to Sime Darby Property Bhd which owns a developable landbank of more than 8,093ha. Based on all three companies’ realised net asset value, UEMS stands to be the majority shareholder with roughly 52%.

Others posit a possible selldown by Khazanah when the merged company stabilises to take its stake below 50% and realise some cash, which seems to be its avowed aim now given a slew of asset disposals of over RM5 bil recently.

It is known that UEMS is part of Khazanah’s commercial assets and is believed to be among the clutch of companies that are up for sale. If the Bumiputera agenda, a policy favouring ethnic Malays for the sale of government assets, is factored in, then Syed Mokhtar arrives as a potential winner. Firstly, due to a lack of Bumiputera tycoons, what more one with clout and political connections.

Secondly, Syed Mokhtar has had a track record of purchasing Khazanah assets such as national carmaker Proton Holdings Bhd and national postal service Pos Malaysia Bhd.

Government officials familiar with the matter say while Syed Mokhtar and Liew have made their request for the merger known to Mahathir, there could be possibility of inaction on the part of Khazanah.

“The only thing credible about this deal, imaginary or otherwise, is that it has not been tabled to the Khazanah board. While the PM wields significant influence as chairman, he doesn’t write the board papers to discuss it. It is the Khazanah management team that drafts the papers.

“Liew and Syed Mokhtar have every right to push the deal as they see fit, but nothing moves without being discussed at the Khazanah board first,” says an official. Heading the Khazanah management team is managing director Datuk Shahril Ridza Ridzuan.

Pushback

It is understood that some in Khazanah’s management team are not for the deal. But despite some resistance, Khazanah officials had met with UEMS board members informally to talk about the merger. The outcome of those sessions is not known.

Dissidents of the merger raise the fact that the union could be more beneficial to ECW, and hence Syed Mokhtar and Liew. Also UEMS does not need ECW’s expertise for a turnaround, the numbers and demands (particularly management control) do not make sense, and the lack of choice in contemplating other proper developers to merge with UEM. “Being limited to only EcoWorld raises questions. Why wasn’t UEM given any leeway?” notes one such protester.

Liew had a bad exit from SP Setia. He joined the company in 1996 and dedicated 20 years of his life to transforming the company into one of the country’s largest listed property firms. Liew was also pivotal in helping Malaysia secure the Battersea Power Station project in the UK.

But those accomplishments were overshadowed by conflicts leading to his exit from SP Setia. In 2011, Permodalan Nasional Bhd (PNB) offered to take over SP Setia but Liew and his board rejected the offer. However, Liew surfaced as a joint offeror with PNB for the takeover.

The exercise ended in 2012 with PNB becoming a major shareholder. Liew was also set for an exit in 2015. But he raised eyebrows after purportedly bankrolling his son’s portion amounting to RM124 mil of a reverse takeover by ECW of then-Focal Aims Holdings Bhd. He did this while still holding office in SP Setia.

Things went further south when Liew tendered his resignation in January 2014 citing retirement wishes, only for the then SP Setia chairman Tun Zaki Azmi to clear the air that Liew would remain chairman of the Battersea Power Station redevelopment project as well as managing director of the Qinzhou industrial project in China – two positions he held during his time as SP Setia head honcho.

The only difference was that he remained in both jobs while commandeering ECW as a director, despite denying any links to the group. This was no mere storm in a teacup. It raised serious issues of corporate controls in Malaysia.

Searching for dividends

Some fear that this merger with UEMS will be a SP Setia 2.0. Indeed, some have said the merged company will help ease the ECW group’s finances. Both ECWs as well as UEMS certainly need some tailwinds. The former has had problems with cash flow by way of ECWI, which saw its cash, bank balances and deposits falling to RM436.96 mil in the financial year ended Oct 31, 2018 from RM992.39 mil in the previous year. ECWD is highly geared with 0.75x net gearing as of June 30, 2019. ECWI is also expected to conduct a mandatory separation scheme in a move to cut costs.

But one analyst also points out that UEMS’ recovery has been slow. The group has been deleveraging but it has yet to provide “attractive” dividends. “That is an important factor because Khazanah wants dividends. To do that, they look to Liew who still has a reputation for being a property developer ace.”

Indeed Liew and Shahril have worked together in the past when Shahril was CEO of the Employees Provident Fund through various property tie-ups. “This yielded positive results for EPF,” says the analyst. “I feel this is more of a deciding factor of the merger, the Liew-Shahril dynamic, then the Syed Mokhtar one. Syed Mokhtar is just one of the cogs in this machine,” he adds.

Another analyst agrees that while the merger will be a union of unequals, Liew is still perceived to have the know-how of running a property company. “We are still speculating. But UEMS needs a proper managerial team. This is something up Liew’s alley.”

Whichever way this pans out, many of those FocusM spoke to believe that the merger will happen. But one thing is certain: some of the warhorses of old still retain significant shine under the “new” Malaysian sun.

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