IOI Corp stays sharp

KLUANG (May 28): IOI Corp Bhd still has its entrepreneurial touch and will be able to take advantage of any business opportunities quickly, said its executive director Datuk Lee Yeow Chor.

Speaking to reporters and analysts on a rare familiarisation trip to the group's plantations in Kluang, Johor last Friday, Lee said IOI Corp still has the ability to make quick entrepreneurial-driven decisions when opportunity knocks.

"I think we are still there, the touch of making quick decisions when opportunity comes. No need to go through a lot of studies, this or that committee approval."

"Of course, Tan Sri Lee [Shin Cheng] is still around, supported by all the professionals," he said, referring to IOI Corp's executive chairman and CEO. Lee is the eldest son of Tan Sri Lee.

Lee was commenting on IOI Corp's plans for the Euro medium term note programme for US$1.5 billion (RM4.73 billion) which it established recently, part of which will be utilised for upstream acquisitions in Indonesia and its property projects in Singapore.

On the size of the upstream acquisition, Lee said the group has the capacity for a major one although the opportunity remains unclear at the moment. "Sometimes it just clicks," he said of its investment in 33%-associate Bumitama Agri Ltd, which it acquired in 2007.

"We were looking for [investment opportunities] for quite a number of years in Indonesia. We looked at 10 to 12 opportunities. Suddenly this one, which we didn't even consider, came to us. This partner is Bumitama. Within two months we closed the deal."

"That's the nature of M&A. Of course, we were nothing in the 1980s and even early 1990s but we grew a lot through acquisitions," he said.

It is worth noting that IOI Corp had walked away from a number of deals in the past. The latest one being the proposed acquisition of 11,977.91ha from Dutaland Bhd which was subsequently aborted due to non-compliance of certain terms and conditions. In May 2008, it terminated the acquisition of 44,350ha of land in Sarawak, two months after it was first announced.

Soon after, it entered into a joint venture with Pelita Holdings Sdn Bhd to acquire 7,000ha of land in Sarawak. However, the JV agreement was terminated in 2010.

In late 2008 as the global financial crisis brewed, IOI Corp terminated the proposed purchase of Menara Citibank from owner Inverfin Sdn Bhd, forfeiting its deposit of RM73.4 million.

Xiamen deals
Lee also said the group is seeking to acquire a second piece of land in Xiamen, China. "We're looking at another substantial opportunity in Xiamen, which we'll announce in one to two months, much bigger than the first one".

IOI Corp has a 7.7-acre land in Xiamen, which it acquired for 314 million yuan (RM156 million), according to its 2010 annual report. Construction of the mixed development project on the first piece of land in Xiamen will commence once it gets the necessary approvals, Lee said.

"Again the land prices there have increased, by about 20% since we bought the land almost two years ago. So we'll make a good profit out of that."

Lee said the group chose to develop property in Xiamen because it is one of the model cities in China and has been recognised as one of the best managed and livable cities there.

"It's very clean, well managed, and has an orderly administration with good transport. We've cultivated quite a good relationship with city of Xiamen government," he added.

On the South Beach project in Singapore which it is developing jointly with City Developments Ltd, Lee said construction commenced a few months ago with an expected completion in 2015.

The project, with a GDV of close to S$4 billion (RM9.85), comprises five components - office, retail, residential, hotel and club.

"We are only going to sell residential, the others we'll keep for investment."

Lee acknowledged that cooling measures and global economic slowdown have affected the Singapore property market, including its development in Sentosa Cove.

IOI has two luxurious high-end projects in Sentosa Cove – Seascape and Pinnacle Collection. Seascape was completed in 2011.

"Our sales are not that good in Sentosa Cove but again we have two parcels of land. The entry cost for one parcel is very low - we are able to make a 35% profit margin on the first piece. Even though sales is slow, we are able to recover most of our holding cost," Lee explained. Pinnacle will be completed in 2014.

"The overall scenario is that there is no more land in Sentosa. We bought the last piece of land there. There's limited supply, when demand increase, the price will go up."

On its latest acquisition in Clementi Avenue in Singapore, Lee said the piece of land will be targeted at the medium-cost segment.

"By our own internal projection, we are able to make 25%-30% profit from there, which we think is good. For the past two months, total transactions in Singapore volume wise keeps going to record highs — over 3,000 units per month but of course it's small units. So we'll adjust our strategy accordingly."

Listing plan
During the briefing, Lee confirmed speculation that IOI Corp is looking to relist its property arm but no time frame was given.

"Yes, we plan to but when, we don't know. There's no time frame. We'll look for right opportunity. After all these big investments, when we think people can see visible results, that's the time to relist," he added.

However, he did not specify if the listing would be on the Singapore Exchange as speculated.

The property arm IOI Properties Bhd was taken private by IOI Corp in 2009 when the latter bought up the remaining 24% minority stake it does not own via a share swap and cash.

On the group's downstream segment, Lee said it is profitable despite challenges from various fronts. For its refining business, IOI Corp is able to carve out niche markets for itself amidst intense competition from Indonesia refiners who are now able to offer attractive prices due to lower export taxes. Nevertheless, he said refining margins in Europe have not been good.

Lee said the group's specialty fats business is less susceptible to palm oil price fluctuation due to its premium product, a cocoa butter equivalent which uses palm oil and shea oil. The product also does not compete as a cooking oil but against cocoa butter.

"So we are less affected by the Indonesia export duties issue. But I must say that cocoa butter prices have dropped a lot, so our prices also dropped," Lee explained.

Nevertheless, given its large pool of multinational customers, the group is still able to get a decent margin. "So, there's no big growth but just maintaining for specialty fats," he said.

Lee commented that the oleochemical business has shown improvement in the last few quarters due to lower palm kernel oil prices. Higher margins in the division compared to refining is another advantage.

"So even though there's this export duty differential between Indonesia and Malaysia we still have a good profit. Of course, Indonesia makes more, but Malaysia also makes RM300 margin (per tonne)," he added.

IOI Corp's upstream business contributed 55% to the group's operating profit in its financial year ended June 30, 2011. The property segment contributed 27% followed by the resource-based manufacturing's 15%.

It has a planted area of 157,045ha in Malaysia and Indonesia, according to its FY11 annual report.

This story appeared in The Edge Financial Daily on May 28, 2012.

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