Sunday 18 March 2018

Ekovest - From a perspective of a minority shareholder

Ekovest will convene an EGM on 29 March to vote on the takeover of Iskandar Waterfront City Berhad (IWC). My thoughts on the takeover and EGM:

1. Does the takeover of IWC bring value to Ekovest minority shareholders?
It was obvious that the market reacted negatively to the news. After the announcement, the share price of Ekovest gaped down from its previous closing of RM1.16 to open at RM1.01 and close at RM0.95. If the takeover does not go through, it is not unreasonable to expect the share price of Ekovest to recover, at least partially.

2. Taking flexibility away from Ekovest and IWC shareholders.
I like the idea of Ekovest listing its toll concession business. Separating businesses under different listed entities enhances value. By doing so, it gives each minority shareholder the flexibility to decide which businesses to invest/ the weighting of investment in each business according to own preference. By marging Ekovest and IWC, shareholders who like only the concession business have to be exposed to the risks of IWC property business. The flexibility deserves a premium in target PE multiple. By merging Ekovest with IWC, it deprives the shareholders of the flexibility in investing either in Ekovest's existing businesses or IWC's property business. This leads to my point no.3.

3. Why pay RM1.50 when you can buy below RM1.50?
IWC shareholders would most likely opt for the RM1.50/share cash option instead of going for the 1-for-1 share swap as Ekovest share price is currently way below RM1.50. If the takeover goes through, Ekovest shareholders are indirectly paying RM1.50 for each IWC share. If you like IWC, why pay RM1.50/share when you can get it directly below RM1.50 if IWC remains status quo? And you get to decide the weighting/ level of exposure you would like to have in IWC.

4. Bedrock orders from related companies.
The circular highlighted one of the benefits of the takeover is Ekovest may expand its concept of river beautification and rehabilitation along the Gombak River to Johor Bahru through the land bank of the IWC along the Tebrau River, to be promoted as an iconic development in the State of Johor by the enlarged Ekovest Group. 

I do not think it is a big hindrance for Ekovest to get the river beautification and rehabilitation works even if Ekovest and IWC remain status quo. We have seen how related companies such as SUNCON, MGB and FFHB secure bedrock orders from its related companies. To me, this is not a very strong point for Ekovest minority shareholders to vote in favour of the takeover.

5. Late payment by Greenland.
Greenland delayed its second payment (RM46.3m) and third payment (RM46.3m) from 15 October 2017 and 15 January 2018 to 15 March 2018 and 15 April 2018 respectively. 

Why the payments were delayed? Can Greenland settle the huge outstanding amount of RM2.1b promptly?

IWC has yet to announce the receipt of payment for second instalment which has become due on 15 March 2018. 

CONCLUSION: In my opinion, the takeover does not appear to be attractive to Ekovest minority shareholders.