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Ekovest, IWCity shares tumble following takeover bid

KUALA LUMPUR (Nov 2): Shares in Ekovest Bhd tumbled as much as 22% yesterday, as investors reacted negatively to news that its executive chairman and major shareholder Tan Sri Lim Kang Hoo intends for it to acquire a 62% stake in Iskandar Waterfront City Bhd (IWCity).

The stock resumed trading yesterday after a two-day halt in anticipation of the announcement, to hit an intraday low of 91 sen in early trade. It closed 21 sen or 18.1% lower at 95 sen — its lowest closing since Dec 29, 2016 — to emerge as one of the biggest Bursa Malaysia decliners of the day. It lost RM456 million in market value in a single day.

Ekovest also saw a total of 366.5 million shares changing hands, thereby emerging as the most active stock yesterday.

Ekovest’s structured warrants (EKOVEST-CE) fell 16.5 sen or 71.74% to 6.5 sen yesterday, with 122.45 million shares done.

UOB Kay Hian analyst Ridhwan Effendy downgraded Ekovest’s stock to a “sell” rating with a lower target price of RM1.04 from RM1.45, saying Ekovest’s proposal to acquire a 62% stake in IWCity comes as a negative surprise. He foresees a negative near-term impact on Ekovest’s share price.

IWCity’s stock was not spared in the sell-off yesterday, falling as much as 9% to an intraday low of RM1.28. The counter pared earlier losses to close down 11 sen or 7.86% at RM1.29, causing it to lose RM92 million in value. A total of 32.33 million shares were traded. IWCity also emerged as one of the top active stocks and biggest losers of the day.

In a surprise announcement on Tuesday, IWCity said the company and its parent Iskandar Waterfront Holdings Sdn Bhd (IWH) have mutually agreed to terminate a plan to merge, which would see the establishment of one of the largest listed property developers on Bursa.

This follows a decision by the owners of the pieces of land that were supposed to be injected into the enlarged IWH — Sultan of Johor Sultan Ibrahim Sultan Iskandar and Kumpulan Prasarana Rakyat Johor Sdn Bhd (KPRJ) — to pull out of their participation in the restructuring exercise between the two companies.

As an alternative, Lim is now proposing Ekovest to buy the rest of the 62% stake not owned by IWH in IWCity through a cash consideration of RM1.50 per share or a one-for-one share swap deal.

Ridhwan said the proposal could see Ekovest forking out up to RM764 million in cash for the stake. This would result in Ekovest’s gearing rising up to 1.1 times from 0.8 times, and could cost the group RM38 million in financing cost per year at a 5% rate, he estimated.

“While equity fundraising could be an option, earnings per share would be diluted given the long-term nature of IWCity’s business, which focuses mainly on land disposals, making earnings delivery rather lumpy,” he said in a note to clients yesterday.

Also, assuming 50% of IWC shareholders opt for the issuance of an Ekovest share, prospective financial year 2018 price earnings for Ekovest could rise to 18.5 times from 16.7 times based on the last traded price.

Still, Ridhwan noted there is a “decent chance” of the deal not going through as institutional holding stands at about 20%. Ekovest would need at least 50.1% of shareholders’ approval for the proposed transaction to go through, excluding Lim and related parties who own more than 50% of Ekovest.

“Our target price could potentially be revised upwards, but not fully restored, should the deal be blocked and no longer pursued by management,” he said.

In May, Ekovest and IWCity also suffered a plunge in their stock price after government-owned TRX City Sdn Bhd terminated its planned sale of a 60% stake in Bandar Malaysia Sdn Bhd to IWH CREC Sdn Bhd. The Bandar Malaysia project was considered the crown jewel of the IWCity-IWH merger exercise.

This article first appeared in The Edge Financial Daily, on Nov 2, 2017.

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