IOI Properties heading towards privatisation?

IOI Corp Bhd, Malaysia's second most valuable firm, may take its property arm private, make fresh purchases or give its convertible bondholders treasury shares, three foreign investment firms speculate.

Credit Suisse said in a report that there was a high chance of IOI Corp privatising IOI Properties Bhd (IOI Prop) if the latter's rights issue was grossly undersubscribed.

In February, IOI Prop said it planned to raise as much as RM932 million, with its parent underwriting the issue.

"As IOI Corp is underwriting the deal, then IOI Corp may end up with more than 75 per cent of IOI Prop. Although there are other options, IOI Corp can choose to privatise IOI Prop at this juncture, at a minimum price of RM4.85," wrote Tan Ting Min, a research analyst.

Doing so would cost its parent some RM1.1 billion and improve its earnings next year by as much as four per cent, the research house said.

In the year to June 30 2007, IOI Corp made a net income of RM1.48 billion.

In another report, Citigroup said that IOI Corp was on the lookout for new investment opportunities.

Over the past eight years, IOI Corp has pumped in more than RM3 billion to take IOI Oleochemical Bhd private, buy the India-based Aditya Birla's edible oil and oleochemical units in Johor, and acquire 100 per cent of Loders Croklaan BV and its related businesses in the US, Canada and Egypt from the Unilever group.

The purchases have made IOI Corp the world's largest oleochemical group.

Merrill Lynch expects the group to use its treasury shares, stocks bought under buyback exercises, to enhance value. In the first half of this year, IOI Corp paid some RM1.2 billion to buy its own shares.

"The highest form of value-enhancement would be to cancel the shares bought back, or it could issue shares to the CB (convertible bond) holders via the shares bought back, thus mitigating any dilution arising from the conversion," Merrill Lynch's Andrew Lee wrote in a report.

IOI Corp currently has a US$360 million (RM1.2 billion) convertible bond due in 2011, with a conversion price of RM4.70 a share, and a US$600 million (RM2 billion) convertible bond due in 2013, with a conversion price of RM11 a share.

By New Straits Times (by Francis Fernandez)