Minority shareholder of Ekovest vote to block the deal, hence the deal will not go through and no changes in Ekovest fundamental. Everybody panic selling for nothing. Share price back to Normal.
The deal actually get through, which means currently there are two options for Ekovest to complete the deal i) Cash consideration of RM1.50 per share or ii) Issue new share of RM1.50 per share on the basis of one for one.
(i) Cash Consideration
Based on the latest QR of IWC, the diluted number of share outstanding for the company is 821,341,000share. If Ekovest want to acquire the 62% of share of IWC through cash, it will need to come out with around RM 760million (821,341,000 share x 62% x RM 1.50).
As we noted, the total cash and cash equivalent (Investment Fund, Short Term Deposits & Cash and bank balances) of Ekovest stand at RM 4.5 billion compare to its total debt of RM 6.3 billion. In short glance, it seems that it is impossible for Ekovest to come out the fund for the corporate exercise due to the huge amount of debt. But we need to bear in mind more than 70% of the debt is long term bond which only required periodic payment. The composition of the long term debt as below.
One might ask how did Ekovest restore the fund that are supposed to fund LDF3 but now used to pay IWC shareholder for the acquisition. To answer this, we need to turn our eye to one of the jewel of IWC, the recent land disposal deal.
IWC had been entered into an land disposal and joint venture deal with Greenland Malaysia Berhad not too long ago. The initial and second payment had been received. The payment schedule as showned below.
Hence, by 2020, Ekovest will get a total cash consideration of around RM 1.3 billion (RM 2.1billion x 62% = RM 1.30 billion). After the deduction of acquisition cost of RM 760million, Ekovest will have a net gain of RM 540million in 2020. Hence, the total earning per share of Ekovest the disposal of land through out the period should be around RM0.25 (RM 540million / 2,139,203,000).
Apart from that, based on the declaration in the AR, total land area of IWC will be 751.84 hectare (upon disposal) with a total book value of more than RM 950million which will include in the land bank of Ekovest for future property development.
ii) Share Issuance
Based on the current number of share outstanding for IWC of 821,341,000, the number of share need to be issue by Ekovest on 1 existing share to 1 new share basis will be 509,231,420 shares. This number of share had represent 23% of current share base of Ekovest (509,231,420 / 2,139,203,000). The current diluted number of share outstanding for Ekovest as showed below.
Upon the share swap deal, Ekovest will be able to consolidate the income from land disposal deal into their 2018 Income Statement. Potential gain of Ekovest for 2018 alone will be RM 192,726,136 (62% of total payment receive). It will translate to full year earnings per share of RM0.07 which should be enough to offset the 20% of dilution in earning per share. Apart from that Ekovest will have access to the land bank same as the cash consideration.
In short, the proposed deal was a good deal to Ekovest. One might argue it will take long time to monetize the acquired asset. However, Ekovest shareholder still able to gain from land disposal until 2020. Apart from that, the almost complete JV with Paradise Realty Sdn Bhd will provide another stream of income as showe below.
Hence, the income might be bumpy but it does not as bad as we think.
So, stand from a perspective of Ekovest shareholder, the best to worst scenario will be:
i) No Deal – Share Price back to normal
ii) Deal With Cash – No dilution of earning, better future earnings due to land disposal deal
iii) Deal with Share – Dilution of earning, but no effect on working capital as no changes in composition of balance sheet.Final Remark
Note: The remark here is just a speculation which got without proof or basis. Reader do not need to take it seriously but discussion are welcome.
Finally, the main goal for Ekovest will be spin off and listing. By going through current corporate exercise, IWC will be part of Ekovest entity. However, the future plan might be the spinoff of asset from Ekovest into three separate company: Highway Toll, Construction and Property & Development for IPO. One might argue if that is the final goal, why don’t Ekovest just sell its property development business for IWC instead of acquisition. I think the main reason will be most of the investor fail to see the value of IWC beyond Bandar Malaysia and IWC do not have the power to carry out the corporate exercise. But if the company is acquired and relist again after a few years after Bandar Malaysia was resolve and the JV with Paradise Realty is complete, a higher valuation might be given to the new IPO company instead of current low valuation towards IWC.
Land Owned By IWC