This article first appeared in The Edge Financial Daily on November 3, 2017

KUALA LUMPUR: After a sharp drop in their stock prices on Wednesday, Ekovest Bhd and Iskandar Waterfront City Bhd (IWCity) staged a rebound yesterday as bargain hunters started emerging.

Ekovest opened at 96 sen — one sen higher than the previous day’s closing of 95 sen — and hit an intraday high of RM1.01 in early trade.

The stock ended the day at 99 sen, up four sen or 4.21% yesterday. Trading volume stood at 92.23 million shares, making it the fourth most active stock on Bursa Malaysia of the day. The stock recouped some losses, bringing its market capitalisation to RM2.12 billion.

Ekovest lost RM456 million in market value on Wednesday after its executive chairman and major shareholder Tan Sri Lim Kang Hoo announced that he intends for it to acquire a 62% stake in IWCity.

The stock tumbled as much as 22% after a two-day halt to hit an intraday low of 91 sen before paring some losses to close 18.1% lower at 95 sen — its lowest closing since Dec 29, 2016.

IWCity also saw a recovery yesterday, after falling as much as 9% to hit an intraday low of RM1.28 on Wednesday. The stock opened two sen higher from the previous day’s closing of RM1.29 to reach an intraday high of RM1.37. By the end of the day, the stock was up six sen or 4.65% to close at RM1.35, with 13.63 million shares done. It also regained some of the RM92 million in value lost on Wednesday, with a market capitalisation of RM1.13 billion yesterday.

On the broader market, the FBM KLCI ended the day 2.88 points or 0.17% lower at 1,741.05, with decliners thumping advancers 518 to 339.

Ekovest’s proposed acquisition of a 62% stake in IWCity at RM1.50 per share — or RM777.84 million — values IWCity at around RM1.25 billion. Shares in IWCity are currently trading at a 10% discount to Ekovest’s offer per share.

On the other hand, Ekovest’s offer to IWCity is reportedly at a 66% discount to IWCity’s indicative open market value of RM3.68 billion, which comes mainly from its 1,052 acres (425.73ha) of land.

Should IWCity opt for a one-for-one share swap for the acquisition consideration, the issuance of new shares by Ekovest at a premium to its prevailing share price is also a good deal for Ekovest, a source familiar with the proposed deal told The Edge Financial Daily previously.

At RM1.50, Ekovest’s possible new share issuance is currently at a 43.33% premium to its latest share price of 99 sen.

However, it is worth noting that the new proposal is seen by analysts as aiming at privatising IWCity. Lim has proposed to the board of Iskandar Waterfront Holdings Bhd (IWH), which owns a 38% stake in IWCity, not to accept the offer from Ekovest.

Analysts view the proposal as a negative surprise for Ekovest as it may see an increase in its gearing to 1.1 times from 0.8 times currently to fund the acquisition, or dilute its earnings per share and increase its price-earnings ratio further through the new share issuance should IWCity opt for the share swap.