THE shareholders of UEM Sunrise Bhd and EcoWorld Development Group Bhd will have to decide when the two companies convene their respective EGMs – whether their companies should merge to become a new entity.
Before the EGM, the boards of the two companies will be advised by their investment bankers whether the merger proposal is a good or bad one.
Currently, UEM Sunrise and EcoWorld are not doing well because the property market is not good. It has been weak for the last few years. Shares of both companies are not doing well on the stock market.
But UEM Sunrise is financially stronger due to its main shareholder being UEM Bhd – 100% subsidiary of Khazanah Nasional Bhd. EcoWorld’s debt ratio is higher than UEM Sunrise, making it financially a weaker company.
On the other hand, EcoWold has stronger management experience in property development.
While UEM Sunrise will have the controlling share in the merged entity, the management will be run by EcoWorld executives because of their experience in the property market.
For UEM and Khazanah, their main focus in property development is the Iskandar Regional Development in Johor, which is the new growth pole in the state. UEM owns most of the land in Iskandar. If it can develop the region into a new vibrant industrial, commercial and services centre, the land value will go up.
I would think UEM and Khazanah are looking at the merger between UEM Sunrise and EcoWorld as a strategic fit to develop Iskandar. EcoWorld also has a large land bank in Iskandar. Therefore, UEM and EcoWorld have a common interest in developing their land assets in Iskandar.
It should be noted the second highway link to Singapore was developed by UEM to serve as a catalyst for Iskandar. Not far from there is the Tg Pelepas port.
The objective of Iskandar is to attract Singaporean and international investors to relocate to southern Johor. As Iskandar grows, there will be spill over effects into the hinterland, including east coast Johor and spreading north to Muar and Malaka.
The shareholders of UEM Sunrise and EcoWorld will have to decide whether this strategic growth objective will drive up share prices.
Let’s see how they decide. – The Vibes, October 10, 2020
Tan Sri Sheriff Kassim is former managing director of Khazanah Nasional Bhd
