IJM Corp to raise stake in KEuro?

KUALA LUMPUR: The potentially huge contracts spin-off from the
RM7.07 billion West Coast Expressway (WCE) project has
spearheaded IJM Corp Bhd into the spotlight. But not to be forgotten is
Kumpulan Europlus Bhd (KEuro), which could see more corporate
exercises.
“For a bigger exposure to the WCE concession, IJM Corp is likely to
increase its stake in KEuro, which is now only 22.72%. It may not want
to privatise KEuro, but certainly it may want to have bigger
shareholdings in the company,” said a market observer.
He added that a bigger shareholding commitment from IJM Corp is also
crucial for KEuro to raise the necessary funding for the equity portion of
the project that is said to be about RM1.5 billion.
After a long wait of more than 15 years, KEuro’s 64.2%-owned subsidiary, West Coast Expressway Sdn Bhd, last week
secured the approval in principle from the government for the privatisation of the construction of WCE under a built-operatetransfer
model and for a concession tenure of 60 years. The highway stretches for 316km from Banting, Selangor to Taiping,
Perak.
With WCE now in the bag and that KEuro also owns 50% of the 1,900-acre (760ha) Canal City development near Kota
Kemuning in Shah Alam could be another reason why IJM Corp may be looking to increase its stake in KEuro. The Canal City
project, which has a total gross development value of more than RM10 billion over 10 years, is slated to commence in
August.
IJM Corp’s listed property arm IJM Land Bhd owns the remaining 50% of the Canal City project and is the lead project
manager. The development could be lucrative given the land cost of merely RM5 per sq ft, according to management.
“KEuro will see more activities from 2012 onwards. With the commencement of WCE and Canal City developments, the stock
may attract more interest,” said a market observer.
KEuro posted a net profit of only RM5.01 million for the nine months ended Oct 31, 2011 on revenue of RM14.81 million. The
company lacked major business activities for the past few years, pending the government approval for the WCE project and
the commencement of the Canal City development. KEuro’s total net borrowings amounted to RM146 million as at Oct 31,
2011.
Nonetheless, a bigger shareholding by IJM Corp in KEuro could mean a dilution in stake for KEuro president and chief
executive Tan Sri Chan Ah Chye, whose family owns a 27.58% stake. The stake is now worth about RM190 million based on
KEuro’s market capitalisation of RM688 million yesterday.
Closing at RM1.32 yesterday, KEuro’s share price has recovered from below 93 sen last August but still trades under its
52-week high of RM1.62 at the beginning of 2011. The stock is not covered by analysts.
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IJM Corp to raise stake in KEuro? [You must be registered and logged in to see this link.]
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IJM Corp’s involvement in KEuro began in 2005 when it acquired a 25% stake in KEuro (now diluted to a 22.72% stake
following a shares placement exercise). The shares were purchased from several KEuro shareholders, including the KEuro
group, Intelbest Corp Sdn Bhd, Pengurusan Bersistem Sdn Bhd, Ambang Sepakat Sdn Bhd and Chan.
The stake comprised 118.37 million shares and were purchased at 28 sen apiece for RM33.1 million. IJM Corp said at the
time the purchase was influenced by its interest in KEuro’s concessions for both WCE and Canal City.
IJM Corp said it purposely did not buy out completely Chan’s stake in KEuro then, as the group saw KEuro president’s
presence and his business connections too valuable to lose.
Since the purchase six years ago, IJM Corp has kept its holdings in KEuro intact. It did not even exercise an option to acquire
another 5% stake that had lapsed within one year after the initial block, probably because of the uncertainty of KEuro
securing WCE. But now that the government has given its approval for the highway concession, IJM Corp may now want to
review its holdings in KEuro.
“The fact that IJM Corp bought its current 22.72% stake in KEuro cheap also means that it could afford to acquire more
shares now and yet still keep its average cost at a reasonable level,” said a market observer.