It seems that Lien Hoe, which had in January this year sold its Kompleks Lien Hoe in Johor Baru to Perduren for RM94.7 million, now has exposure to the same asset at the cheaper price of RM22.7 million.
To recap, in August, Lien Hoe forked out RM10 million to increase its shareholding in Perduren from 2.94% to 10.28%. On Oct 22, Lien Hoe purchased an additional 13 million Perduren shares in a married off-market deal for RM11.7 million. Both were bought at a premium to Perduren's share price at the time.
However, given that property prices are likely to rise in the coming months, Perduren could see a significant improvement in the value of its two shopping complexes. As such, there could be some potential upside to Lien Hoe's investment.
At present, Lien Hoe's biggest shareholder is its managing director Datuk Yap Sing Hock, who directly holds a 26.9% stake.
Although it looks to be a sweet deal, it should be noted that Lien Hoe is increasing its exposure to a company which is holding an asset that it (Lien Hoe) had earlier sold because the property was giving diminishing returns. Also, the fact that Lien Hoe is increasing its stake in Perduren when its own finances are still on shaky ground has baffled property analysts.
"Lien Hoe has been actively disposing of its assets in the past year as part of its restructuring exercise, and using the money to pare down its debts. Logic suggests that Lien Hoe would not undertake such an investment at this point in time," says an analyst.
Yap could not be reached for comments.
Lien Hoe now holds a 20.56% stake in Perduren and is its largest shareholder. This is significant, considering that Perduren's previous shareholding structure was highly fragmented, according to its latest annual report, with no one shareholder holding more than 10% of the company's shares.
However, Lien Hoe shareholders might want to question whether this investment in Perduren is making the best use of the company's limited resources.
When Lien Hoe first upped its stake, the company came under flak for increasing its gearing from 0.67 to 0.70 times. Although marginal, analysts found it unusual that a company that had been focusing on shoring up its balance sheet would intentionally increase its debt level.
In its latest exercise, Lien Hoe stated that it would be funding the share purchase using its cash reserves. But, according to its latest second-quarter results, the group's cash and bank balances only total RM7.2 million. Add in the short-term borrowings of Lien Hoe totalling RM89.3 million, and it appears that the company can ill-afford its latest purchase.
However, Lien Hoe is confident that turning Perduren into an associate company will prove beneficial in the long run.
"This move will enable the company (Lien Hoe) to equity account the financial results of Perduren in its books.
Further earnings growth for Perduren can be expected from its intended venture into property development," Lien Hoe states in an announcement.
But if Lien Hoe's reasons for increasing its stake is to equity account the share of profits, it is not going to be anytime soon, considering Perduren's less than stellar financial results. For the financial year ended March 31, 2007, Perduren made a loss of RM1.8 million while its revenue stood at RM6.9 million.
The good news is, the losses came from Perduren's discontinued garment operations and are hence a one-off thing. As such, Perduren is optimistic about returning to profitability for FY2008, on the back of its two main properties Holiday Plaza and Kompleks Lien Hoe.
Lien Hoe had seen income from its various shopping complexes decline in the face of stiff competition. The company also saw the resignation of its executive director Kenneth Vun, who left on Oct 24 under a cloud of controversy. Earlier this month, the Securities Commission had filed a civil suit against Vun for RM2.5 million for alleged misuse of funds from the initial public offering of FTEC Resources Bhd, where Vun is the managing director.
There also could be another potential twist to the tale. On Oct 1, Perduren appointed its current property manager Holiday Plaza Sdn Bhd to manage Kompleks Lien Hoe for RM285,000 per month.
"The price paid appears rather steep, given the condition and location of the mall," says an industry observer, who admits he was surprised at the pricing.
Coincidentally, listed in Lien Hoe's latest annual report as a wholly owned but dormant subsidiary is a company named Holiday Plaza Complex Management Sdn Bhd. However, information given by Perduren about Holiday Plaza reveals no obvious links to Lien Hoe or any of its subsidiaries.
Whatever the case, Lien Hoe, by being the single largest shareholder in Perduren, has indirect control over the complex it sold to the latter. And that too at a much cheaper cost. So, has Perduren shareholders really benefited from its acquisition of Komplek Lien Hoe? It certainly does not appear so.
By The EDGE
Posts
1 comment:
Don't buy these shares, more bad news to come sooner or later.
Post a Comment