Quek eyes Eco World International

RECLUSIVE tycoon Tan Sri Quek Leng Chan is looking at acquiring a substantial stake in Eco World International Bhd (EWI), which is en route for an initial public offering (IPO) to list on Bursa Malaysia, several sources say.

“His team is currently undertaking a due diligence study on EWI,” says a source familiar with the matter.

Another source says, “He is keen on the London property market and wants to buy into that segment through EWI’s platform … But, of course, it also depends on the pricing.”

With his sharp business acumen, Quek is well known for his ability to sniff out a good deal and seldom overpays for things.

Quek already has interests in the property sector via direct and indirect stakes totalling over 70% in Singapore-listed GuocoLand Ltd, which has projects in the island republic, Malaysia, China and Vietnam.

As for EWI, the developer has projects in London and Parramatta (West Sydney), Australia. Cumulatively, it had £712.5 million worth of sales as at Jan 31, 2016.

Property analysts, however, point out that EWI can only recognise most of the sales when it hands over the properties to the buyers.

“EWI cannot recognise most of the sales value until the projects have been completed and are handed over to the buyers. This is because the accounting treatment for property sales in those markets is different from that in Malaysia where earnings are recognised based on the percentage of completion,” says an analyst with a local research house.

“Revenue from property sales in the UK and Australia can only be recognised when the risks and rewards of the properties have been fully transferred to the purchasers, which is upon the physical completion and handover of the properties. As such, the bulk of EWI’s earnings will only likely come in in two to three years’ time.

“But I guess if Quek does decide to buy into EWI, he does have holding power.”

In its prospectus exposure draft for the IPO, EWI notes that the earliest it expects a significant increase in cash flow from its property development projects would be in the third quarter of 2017. This is when the physical completion and delivery of vacant possession of the properties are scheduled to take place.

It adds that barring any unforeseen circumstances, the group expects to record a profit after tax and non-controlling interest with the completion and handover of the launched units of certain of its UK property development projects by the financial year ending Oct 31, 2018.

The £712.5 million worth of sales secured by EWI is from its London City Island phase 2 project, which is located in East London (£273.9 million sales since its launch in May last year); Embassy Gardens phase 2 project in Nine Elms (£120.8 million sales since its launch in September last year); Wardian London, situated next to the Canary Wharf in London (£186.4 million sales since its launch in September last year) and West Village, Parramatta (close to 90% sold or A$265.6 million [RM784.75 million] sales since its launch in June last year). The estimated total gross domestic value is £2.19 billion for the three projects in London and A$311 million for the development in Sydney.

Last month, EWI received Securities Commission Malaysia’s approval for its IPO to list on the Main Market. The proposed IPO will involve the issuance of up to 2.153 billion new RM1 shares, representing up to 89.7% of EWI’s enlarged issued and paid-up share capital. The group said on April 7 that there would also be a bonus issue of up to 960 million free warrants on the basis of two warrants for every five shares held after the IPO.

The proceeds from the proposed IPO would primarily be used as working capital for the group’s projects in the UK and Australia. The group also said the funds would be used to repay borrowings undertaken to part-finance, among others, land and related acquisition costs and project development expenditure.

About 408 million shares or a 17% stake will be offered to retail investors while 1.025 billion shares or a 42.7% stake will be made available to institutional investors.

Last month, EWI’s sister company, Eco World Development Group Bhd, announced fundraising plans where the bulk of the expected sum — about RM468 million — would be used to part-finance its subscription for EWI’s IPO.

It also said it wanted to subscribe for a stake up to 30% in EWI, making it the anchor investor in its sister company.

It is interesting that EWI has caught Quek’s eye. While the shrewd businessman has yet to make up his mind on the acquisition, it is certain that he will not make a move before studying it through and through.

This article first appeared in The Edge Malaysia on May 16, 2016. Subscribe here for your personal copy.