#Update* Lye trumps Low in Ho Hup EGM

PETALING JAYA: Ho Hup Construction Co Bhd’s proposed sale of two parcels of land was passed with a 60.06% majority in an extraordinary general meeting (EGM) on Thursday, Dec 31.

The result, which was achieved by poll of votes based on shareholdings, indicated that Datuk Vincent Lye, a major shareholder and deputy executive chairman of Ho Hup, had trumped his opponent Datuk Low Tuck Choy on the proposed land sale.

Low, himself also a major shareholder in Ho Hup, had said that he would vote against the deal. In fact, he had advertised in several newspapers, few days ahead of the EGM, questioning the price for the proposed sale of land for a total consideration of RM12.9 million.

Low, whose father founded the construction outfit 50 years ago, was managing director of Ho Hup until he was ousted in September 2008, shortly after Lye’s admission into the company’s board. Low has been at loggerheads with Lye ever since.

There was low turnout at the Ho Hup’s EGM, with less than 50 shareholders present. This was largely expected due to the New Year’s Eve and ahead of the long weekend. Perhaps to avoid direct confrontation, both Lye and Low also didn’t turn up at the meeting, except sending their representatives or proxies to vote at the EGM.

But despite a small crowd, a total of 63.8 million shares representing 62.6% of Ho Hup’s total issued shares went to vote on the proposed land sale, which involves a 5.5 acres parcel in Balakong and another 2.6 acres plot in Bukit Jalil. It is understood that Low’s representatives had requested for the poll to be conducted on the proposal, which otherwise would require just a show of hands from those who present.

As a result, of the 63.8 million shares polled, 60.06% or 38.3 million shares voted for the sale of land while 39.9% or 25.5 million shares were against it. 100 shares were abstained from voting. The outcome showed that Lye was in control of the company, as Low had been out-voted by a wide margin. This was despite their almost level shareholdings in Ho Hup per official filing.

According to the latest filings available on Bursa Malaysia as of Oct 13, Lye controls 28% or 28.5 million shares in Ho Hup while Low owns about 26% or 26.5 million shares. However, it could not be confirmed if Lye or his supporters had since acquired more shares from the market to build up their votes ahead of the EGM. Note that Ho Hup shares were actively traded over the past one-week.

The EGM, with two security personnel guarding the entrance, lasted for one and a half hour. It ended with management, led by Ho Hup’s managing director Lim Ching Choy, beaming over the result.

“We are very glad with the shareholders support. Because of this, we believe we will achieve a turnaround in the company soon,” said Lim, Ho Hup’s MD. He further stressed that the price of the proposed land sale was independently valued and the per-square foot price was based on gross area, which total value should work out to be roughly the same as claimed by Low.

Nevertheless, while the management controlled by Lye had the clearance from shareholders for the proposed land sale in today’s EGM, there is another hurdle where it has to seek greater shareholders’ support for an upcoming restructuring scheme to re-capitalise Ho Hup and get it out of Practice Note 17. The scheme entails a steep 95% capital reduction at Ho Hup, a rights issue and a major shares placement exercise that will significantly dilute existing shareholders.

On whether the management expects the same level of support from shareholders on the restructuring scheme, which is still being reviewed by the regulators and if cleared will be deliberated in another EGM a few months from now, Lim says he will leave it to the shareholders.

The restructuring scheme would need at least 75% shareholdings approval. Hence, Low’s support will be crucial for the exercise to go through because he owns about 26% in the company. This could be a challenge to Ho Hup’s management controlled by Lye.

“We leave it to Datuk Low to make the decision. We are willing to communicate with him,” said Lim.

Commenting on why such a steep capital reduction is necessary, Lim said Ho Hup needs to clear the huge accumulated losses in its books— amounting to about RM110 million as of Sept 30, 2009, to pull itself out of PN17. And contrary to what Low had claimed, Lim explained that revaluing Ho Hup’s land bank, especially the 60-acres in Bukit Jalil whose market worth is much higher than its book value, would not solve the company’s problems.

“The 60-acres land bank is considered ‘inventory’ and not investment properties, because the company plans to develop them next year. Hence, based on accounting rules, the revaluation surplus of the land, which is deemed to be an inventory, cannot be capitalised,” said Ho Hup’s chief financial officer Ivan Oh.

On another note, Lim said Ho Hup had received an offer from a bank for a RM120 million facilities to kick-start the development activities at its core 60-acres land bank in Bukit Jalil next year. The development, which comprises office suites, shops and shopping malls, is key to Ho Hup’s revival. The project is said to have a total gross development value of RM1.6 billion over a period of eight-to-10 years.