IOI Corp should better explain why it’s losing its RM73mil deposit

Saturday November 29, 2008
IOI Corp should better explain why it’s losing its RM73mil deposit
A QUESTION OF BUSINESSBy P. GUNASEGARAM

REALLY, listed companies should be a lot more careful before they pay a deposit for their proposed acquisitions. If they can’t complete their deals for any reason, they can lose hefty sums of money and raise needless suspicion over board integrity.
Boards of listed companies and CEOs should realise that they have a statutory duty not only to their major shareholders but also to each and every shareholder – and there are many minority shareholders to consider.
The least that listed companies should do when they abort their deals is to offer a full and fair explanation of why it was aborted, what were the events that had changed and why these things had not been anticipated in the first place.
Take the deal called off inexplicably by IOI Corp after having signed on the dotted line less than three months ago and losing over RM73mil in deposits paid in the process.
It had announced on Aug 28 the effective acquisition of Menara Citibank in Kuala Lumpur for RM586.7mil through the purchase of Inverfin Sdn Bhd which owned the building. Inverfin is owned in turn by Citigroup unit Citi Holding (50%), Singapore’s CapitaLand (30%) and Amsteel Corp (20%).
On Thursday, Nov 27, IOI Corp, just a day short of three months of the earlier announcement, told Bursa Malaysia that it has decided not to proceed with the acquisition.
The reason in IOI Corp’s own words: “However, due to the recent sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments, the Company has, after due and careful deliberations, decided that it would be in the overall best interests of the Company and its shareholders not to proceed with the Proposed Acquisition.”
It further announced that the vendors were forfeiting the deposits paid of RM73.4mil together with interest and added that it was “seeking legal advice as to the propriety and quantum of the aforesaid forfeiture”.
It is instructive to note what IOI Corp said in its original acquisition announcement: “The Proposed Acquisition will provide IOI with an immediate substantial rental income stream. With its choice location at the heart of Kuala Lumpur and well served by the surrounding infrastructure and amenities, Menara Citibank is presently enjoying close to 100% occupancy rate with quality tenants consisting of multinational companies and reputable companies in their respective industries.
“In addition, the 50-storey Menara Citibank is well-maintained and well-equipped with high quality mechanical and electrical equipment and good security system. Its distinctive design and quality also distinguish itself from the competing office buildings in the vicinity.
“On the whole, the Proposed Acquisition is a strategic move which augurs well for the IOI Group as it accords the Group with the golden opportunity to own one of the few available high-rise Grade A office buildings in Kuala Lumpur with first class location and prestigious address.”
So, why is that changed in three months? Was there an exodus of tenants from Menara Citibank? Did the rental income drop? Was there a collapse in office space prices? Why is the acquisition not strategic anymore?
Why could not IOI Corp have foreseen these problems earlier? After all, the subprime crisis was already upon us. Why did it pay the deposit which it now has most likely lost if it had felt there could be problems?
IOI Corp’s explanation is poor at best and we really don’t know what it is at worst. Investors certainly expect a lot more from this company, once the darling of the stock market. And so should regulators. Minority shareholders certainly have a right to be seriously upset.
Coming so soon after its recent debacle where it reported foreign exchange losses of over RM312mil for the quarter to end-September, the latest episode will put another dent in its reputation, largely unsullied until the forex episode.
 (P. Gunasegaram is managing editor of The Star. He believes that reticence in the face of trouble only exacerbates a company’s problems.)
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