KUALA LUMPUR: Shares in UEM Land Holdings Bhd have dropped below the threshold of RM2.30 for the first time since the company's acquisition of Sunrise Bhd earlier this year. This will likely prompt holders of its redeemable convertible preference shares (RCPS) to engage in a wait-and-see exercise, as they may opt to wait for full redemption rather than convert them to shares.

Following the rapid sell-off in global equities last week, the stock fell 20 sen to RM2.37 last Friday. Amid the global rout on Monday, UEM Land's shares fell to as low as RM2.06 before closing at RM2.16, down 21 sen for the day on a heavy volume of 43.4 million shares. It was the second most active stock.

UEM Land had late last year undertaken a conditional offer for Sunrise at RM2.80 per share. Sunrise's shareholders were made available two options for each share: a straight share-swap exercise of 1.33 UEM Land shares priced at RM2.10 each, or 2.8 RCPS in UEM Land at an issue price of RM1.

Those who opted for the unlisted RCPS were able to convert them anytime within two years into new UEM Land shares at RM2.30 each, either in terms of 2.3 RCPS or 1 RCPS plus RM1.30 cash for each share. Alternatively, holders of the RCPS can also redeem them in full upon maturity at the end of two years.

The effective acquisition date was Jan 6 this year when the first batch of settlement for the offer shares was issued. UEM Land had then received acceptances representing 96.4% of the offer shares where 238.2 million shares and 837.1 million RCPS were issued.

On Jan 14, the notice of compulsory acquisition pursuant to Section 222 of the Capital Markets and Services Act, 2007 was posted to the remaining shareholders of Sunrise and the acquisition was completed on Feb 16.

According to an analysis of UEM Land accounts as at March 31, a total of 837.09 million RCPS and 261.88 million shares were issued for the exercise. Of this amount, 115.51 million RCPS were converted into shares in the first quarter using the RCPS plus cash option, and 239,820 RCPS converted into shares using the swap option.

The cash plus RCPS conversion, based on back-of-the-envelope calculations by The Edge Financial Daily, would have added cash of RM150.16 million to UEM Land's coffers in the first quarter.

After acquiring Sunrise and before the latest sell-down, shares in UEM Land have been trading between RM2.50 and RM3.25, but mostly around the RM2.70 level.

The stock had rallied strongly on the back of institutional buying interest as analysts welcomed the acquisition, which created the country's largest property developer by market capitalisation.

Sunrise was seen to give UEM Land strong management expertise, branding and near-term earnings. The recent resolution of the railway land swap also gave UEM Land exposure to the island republic, and paved the way for more Singaporean investments into Iskandar Johor, where the company holds large tracts of land.

"UEM Land Holdings is now able to broaden its geographical spread in its landbank to include Mont'Kiara, KLCC and Vancouver; diversify its product offerings to include high-rise residential and integrated commercial development; capitalise on Sunrise's expertise, track record and brand equity which is recognisable and trusted by the market as well as benefit from Sunrise's earnings visibility," the company said.

However, with the global market sell-off and UEM Land shares falling below RM2.30, analysts said investors holding the RCPS may prefer to wait another 1½ years until the two-year period is over, and redeem their investments in full.

For the 1QFY11 ended March 31, net profit grew more than five times to RM17.6 million from RM3.14 million a year ago, after the consolidation of results from Sunrise and direct development projects in Nusajaya Johor. Revenue rose to RM187.69 million from RM39.7 million and earnings per share increased to 44 sen from 13 sen.

UEM Land said its prospects for 2011 had significantly improved with the acquisition of Sunrise.

"[This] is anticipated to better position the enlarged UEM Land group to capitalise on the upward trend in the property industry and seize opportunities in the Greater KL area," it said.

AmResearch has a fair value of RM4 for UEM Land which is its second top pick in the property sector, after S P Setia.

SHARE