Affin: Bid for Ireka ‘not fair but reasonable’

by **Cals** Wed 29 Jan 2014, 08:14

Posted on 29 January 2014 - 05:38am

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PETALING JAYA (Jan 29, 2013): Affin Investment Bank said the proposal by Ireka Corp Bhd's major shareholders to take the company private via a selective capital reduction (SCR) and repayment exercise is "not fair but reasonable".

In its independent advice circular yesterday, it said the cash repayment sum was not fair as it was lower than the fair value of RM1.20 it had pegged for each Ireka share.

"The cash repayment sum is also not fair as the cash repayment sum is below prevailing market price if Ireka shares as at the last practicable date (Jan 24, 2014) of RM1.07," it said.

However, Affin Investment was of the opinion that the proposed SCR was "reasonable" as shareholders have the opportunity to dispose of their shares immediately at a premium above the closing market prices on the last full trading day being June 13 2013, and up to a year volume-weighted average price (VWAP).

Another factor was low trading liquidity of Ireka shares as compared to comparable companies.

It also noted that the proposed SCR offers entitled shareholders with an exit avenue "for an investment which provided a negative rate of return of 0.26% over the past five years."

It pointed out that while the group's main contributor was derived from its construction segment, its profits trend was largely affected by its investment in two entities listed on the London Stock Exchange and Hanoi Securities Trading Centre, namely Aseana Properties Limited and Kinh Bac City Development Shareholding Corp.

"The construction net profit margins achieved by the group were unable to absorb the negative impact of the mark-to-market write-off for its investment in Kinh Bac or the share losses from Aseana," it said.

It was told by Ireka's management that does not expect to turnaround the group withn the next two years given the continued expected losses from its investment its 23.07% property development associate, Aseana.Also taken into consideration was the uncertainties the group faces given the prevailing challenges in the contruction industry as well the absence of an alternative offer and a higher bid for Ireka shares.

"After taking into consideration the various factors….we are of the view that the proposed SCR is not fair but reasonable and is not detrimental to the entitled shareholders.

"Accordingly, we recommended that the entitled shareholders vote in favour of the special resolution pertaining to the SCR to be tabled at the forthcoming EGM," it said.

In June 2013, Ireka's major shareholders, Ideal Land Holdings Sdn Bhd, together with persons acting in concert, proposed to take the company private via a SCR exercise at 90 sen apiece through a special purpose vehicle, Olymvest Sdn Bhd.

The offer price represents a 44% discount to its unaudited net asset per share of RM1.60 as at March 31 2013.

Notably, Ireka's founder and managing director, Lai Siew Wah, is the substantial shareholder in Ideal Land. The alliance now collectively holds 64.7% of Ireka's total capital spread.

Pursuant to the proposed SCR, shareholders who hold the remaining 35.35% stake will be entitled for a total capital repayment of some RM36 million.