Ho Hup on the verge of moving on?

KUALA LUMPUR: Early this month, Ho Hup Construction Company Bhd’s share price staged a sharp rally despite a lack of development in the construction outfit.

From 45.5 sen on April 1, the counter rose 71% to 78 sen on April 12. Ho Hup has been trading slightly below 70 sen since as shareholders await the company’s next move on its regularisation plan.

In March, Ho Hup had announced several proposals to regularise its financial condition to uplift the company from its PN17 status. The proposals included a par value reduction by 50% followed by a rights issue of 51 million new shares with detachable warrants and a private placement to raise proceeds of RM30.6 million.

The announcement had sparked hope that its regularisation plan was finally taking off.

However, last week, Ho Hup applied for an extension of time till July 19 to submit its regularisation plan which would otherwise have been due on May 1. If approved, this would be another delay for Ho Hup to get its regularisation plan on the road.

Jalil Damai Condominium is among Ho Hup’s completed projects in Bukit Jalil

But it is learnt that the application to extend its deadline this time around was in anticipation of the verdict on the suit involving its prized possession — 60 acres (24ha) of land in Bukit Jalil — which is expected on May 19.

“There would be more certainty to the regularisation plan once the court decision is made. The structure of the scheme is already there but some details may be varied depending on the outcome of the case,” a source familiar with the matter told The Edge Financial Daily.

Should the court’s decision favour Ho Hup, the company would have the option to develop Bukit Jalil on its own, which was reported to have a gross development value of RM1.7 billion, a huge margin over the estimated cost of development of RM1 billion; and manage its own cash flow.

Otherwise, Ho Hup would have to continue with its joint development agreement (JDA) with Pioneer Haven Sdn Bhd, an indirect subsidiary of Malton Bhd.

The source said the outcome of the lawsuit would determine the schedule of its proposed creditors’ scheme. According to the announcement, Ho Hup and its 70%-owned Bukit Jalil Development Sdn Bhd owed some RM329.2 million in secured and unsecured loans.

Ho Hup, then led by former deputy chairman Datuk Vincent Lye Ek Seang, had entered into the JDA via Bukit Jalil Development with Pioneer Haven. Under the JDA, Bukit Jalil Development would develop the 60 acres of freehold land into a mixed residential and commercial project together with Pioneer Haven. Pioneer Haven would be solely responsible for the financing of the development. Bukit Jalil Development would not have to fork out any money, but would be entitled to at least RM265 million, or a 17% share of the project’s gross development value, from Malton over the various phases of the project.

The deal was opposed by former managing director Datuk Low Tuck Choy. Existing shareholders of Ho Hup contended that the deal did not get their approval and it was not favourable to the company as the returns could have been higher had it opted to sell or develop the land on its own.

Ho Hup’s new board filed a lawsuit in April 2010 to render the JV agreement ineffective.

It remains to be seen if Ho Hup’s proposed regularisation plan would take off this time.

One of the obstacles in Ho Hup’s path to full recovery is that both its major shareholders, Lye and Low, who have been at loggerheads for more than three years, have almost the same shareholding in the company.

Lye has an equity stake of 27.95% via Extreme System Sdn Bhd while Low holds 27.23% of direct and indirect stakes. This has made it difficult for shareholders to decide on company matters. Previously, efforts to revive the company by either party had been road-blocked by the other.

Furthermore, the new restructuring proposal would see the entry of a new substantial shareholder in Plenitude Frontier Sdn Bhd, whose shareholders include developer Raymond Tan. Plenitude would inject assets worth RM46.8 million into Ho Hup in exchange for shares.

Plenitude’s shareholding in Ho Hup would be 29.44% post restructuring while Lye and Low’s stake would be reduced to 17.93% and 17.47% respectively.

It is uncertain how the entry of a new substantial shareholder would sit with the existing shareholders.

The on-going tussle between Lye and Low has been a hindrance for the beleaguered company to move on. It is certainly the hope of minorities that this time would be different.