Small is beautiful


IN the past, housing projects were respected for their size only if they covered at least 1,000 acres.

On the other side of town, so to speak, developers of luxury condominiums contended that their projects could have equal, or even greater, value than township projects.

Foreign fund managers agree with that. They are now keener on developers with small but valuable parcels of land in the city centre than the traditional developers with sprawling township projects in outlying areas.

They snapped up the shares of companies like Eastern & Oriental Bhd and YNH Property Bhd that are developing posh condominiums and office properties in Kuala Lumpur.

Last week, there was very firm demand for Equine Capital Bhd and DNP Holdings Bhd. Equine had proposed to develop upmarket projects in Penang while DNP, according to a report by UOBKayHian last week, would develop Menara DNP, a single high-rise project with a gross development value of RM1.08bil in the Kuala Lumpur City Centre (KLCC) area.

United Malayan Land Bhd (UMLand) shares were also pursued, gaining 45 sen to RM2.78 last week. Fund managers were said to be attracted by its condominium projects in Kuala Lumpur rather than its township projects in Selangor and Johor.

The company segments its business into two sectors, namely township division and niche developments in prime locations. An official told the media last week that its three condominium projects being planned have a GDV of RM1bil.

The interest in UMLand shares was also partly due to a 21% stake held by Singapore’s massive CapitaLand Ltd, which is viewed as a world-class developer.

A stock that has yet to be researched by brokers is Ken Holdings Bhd. The company started out in construction before it diversified successfully into property development.

After the successful launches of Ken Damansara I and II, it is now developing Ken Damansara III in the popular SS2 area of Petaling Jaya.

It will soon develop serviced apartments on the highest point of Bangsar, and it acquired in February two pieces of land in the upmarket Taman Tun Dr Ismail in Kuala Lumpur.

It also owns land with beach frontage near the Park Royal Hotel, and in addition, it has net cash of over RM16mil.

Its founder managing director Tan Boon Kang would know the value of Ken better than anyone else. He has increased his stake in Ken to 50.1% from 46.2% two years ago.

Presently, trading in Ken is illiquid and that can only be rectified if institutional funds buy into the stock as only they, and not retail investors, would pay more for the shares.

It is only when share prices are higher that more shareholders are more willing to sell their shares, which would lead to improved trading liquidity.

Private offers

The matter of higher share prices and willingness of shareholders to sell their shares have become a more contentious issue as investors encounter the biggest wave of offers in Bursa Malaysia’s history to take companies private.

As there had not been so many such exercises before, the public has not had much experience in dealing with it.

With so high in number, there would obviously be a wide range of offers.

The issue is it has reached a stage where an offer can be less than 5% of the market price of the shares. In spite of that, acceptances can be high.

That leads to the question whether there were many shareholders waiting for a chance to sell their shares for a gain of less than 5%, or did they file their acceptances out of fear their shares would be de-listed.

A corporate finance (CF) executive said the rules were quite clear. A general offer (GO) can proceed once the offeror’s stake exceeds 51%. Below that, the offeror has to refund the acceptances.

The offeror can initiate a de-listing resolution if he gains a stake of over 75%. At this point, the offeror relies on chapter 8.15 (3) of Bursa Malaysia’s Listing Requirements (LR).

That states that if a listed company fails to maintain a public spread of 25%, that is, the minimum that must be held by minority shareholders, Bursa may suspend or de-list the stock. That can be read as Bursa may or may not suspend or de-list.

There is another chapter in the LR that many minority shareholders are not aware of. This is chapter 16.05 (b), which states the threshold that must be crossed when a listed company requests for de-listing.

This rule states that the de-listing resolution must be approved at an EGM by a majority of three-fourths (75%) in the value of shares held by shareholders and if those who object to a de-listing do not represent more than 10% in the shares held.

The threshold to be crossed for a de-listing is therefore 90% and not 75% as widely believed. This is the threshold because shareholders holding more than 10% of a company can block its de-listing.

In a situation where the offeror owns more than 75% of a company, it usually means there could be hundreds of minority shareholders owning less than 25%, who do not accept the offer. Minorities have rights, too.

If the offeror secures more than 90% of a listed company, however, there would be no question the attempt to take the company private would succeed, but not until then. It also means an offer price must be sufficiently attractive to collect a level of acceptances to that level.

The CF executive said there was a risk that Bursa would suspend a stock if it did not have a public spread, but he believed Bursa was unlikely to do so when it still had hundreds of shareholders, unless the offeror’s stake reached or approached 90%.

When the offeror’s stake reaches 90%, he would usually make a compulsory acquisition of the rest of the shares.

At that stage, the minorities lose their rights to keep a company listed, but the compulsory acquisition provides them with an avenue of exit.

Minority shareholders should accept a GO for its attractive price, and not out of fear. They should read the LR on Bursa’s website or call Bursa or their broker for advice.

Big markets

LCL Corp Bhd gained RM2.36 to RM5.70 last week, shortly after announcing it secured a large interior fit-out job of RM119.6mil in Dubai.

While that was a large order, the client is also significant. That was its fourth job for Emaar Properties, one of the biggest developers in the Middle East.

Emaar reported a net profit of RM1.6bil in its first quarter, making it a giant compared with developers in this country. Potentially, there could be a long pipeline of orders ahead for LCL.

Bonia Corp Bhd has also made inroads into the Middle Eastern markets, although it has made a gradual progress, unlike LCL whose orders soared suddenly.

Bonia, a manufacturer of branded leather goods, registered a 19% rise in overseas revenue to RM35mil in the second half of last year.

Like LCL, Bonia has a large business partner. Bonia has more consignment counters at Parkson department stores in Malaysia than in any other chain stores.

Now, it is intent on opening counters in Parkson’s stores in China. Parkson Retail Group is one of the biggest foreign retail chains in China.

“We are in discussion with Parkson to open counters in their stores in China. We have a good relationship with Parkson for many years,” Bonia finance director Chong Chin Look told StarBiz on Friday.

Bonia’s execution of its export plan in the Middle East and China should be closely watched by investors.

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