KUALA LUMPUR: IOI Properties Group Bhd’s (IOIPG) decision not to pursue its proposed RM2.74 billion acquisition of a 37.17% stake in Taipei Financial Center Corp (TFCC), owner of the iconic Taipei 101 skyscraper, is seen as a positive move by analysts.
TA Securities’ head of research Kaladher Govindan told The Edge Financial Daily (TEFD) that the research house is positive on the news.
“We are positive on the news as the purchase price for Taipei 101 translates into an unattractive 2.7% gross rental yield, which is opposed to our estimated dividend yield of 4% to 5% for IOIPG in its financial year ending June 2016 (FY16)/FY17,” he told TEFD.
His sentiments were echoed by an analyst who said that IOIPG’s (fundamental:1.35; valuation:1.8) decision not to pursue the acquisition was understandable given the circumstances.
“Taipei 101 is a matter of national pride for the Taiwanese, Malaysia too would have taken a similar stance if any foreign company wanted to purchase a stake in the Petronas Twin Towers; therefore, I think this decision is understandable and I don’t think it’s going to have much impact on its share price,” said the analyst.
Recall that IOIPG entered into conditional share sale agreements (SSAs) on Dec 5, 2014 to buy 546.46 million shares, equivalent to a 37.17% stake in TFCC for NT$25.14 billion (RM2.74 billion at the time of the agreements).
In a filing with Bursa Malaysia last Friday, IOIPG said that the three-month period for the seller and purchaser to obtain the foreign investment approval from the Investment Commission of Taiwan expired on March 5, and that the company had decided not to seek an extension.
“The company has decided not to extend the three-month period as stated in Clause 10.1(c) of the SSA and hence, the SSA is terminated,” read the announcement.
It added that in accordance with the SSA, the company will now proceed to obtain the refund of the deposits paid by IOIPG.
The proposed acquisition involved a few agreements. IOIPG would purchase the entire stake in Ting Gu Development Co Ltd, which holds 78.45 million shares or a 5.34% stake in TFCC, from Golden Shine International Holding Ltd, for NT$3.61 billion.
IOIPG would then buy 4.41 million shares or a 0.3% stake in TFCC from Ting An Ltd for NT$200 million. Subsequently the group was to acquire 385.98 million shares or 26.25% stake in TFCC, held by Ting Ji Development Co Ltd, for NT$17.76billion. It would also purchase 77.62 million shares or a 5.28% stake in TFCC, held by Ting Li Development Enterprises Co Ltd, for NT$3.57 billion, thus bringing the grand total amount to be forked out by IOIPG for the deal to NT$25.14 billion.
If the deal had gone through, IOIPG would have been the second largest owner of Taipei 101, after the Taiwanese government which has a 44.35% stake.
Reuters reported last year that Taiwan’s finance minister Chang Sheng-ford had said in the Taiwanese parliament that TFCC should not be controlled by foreigners as it is a national landmark.
“Our evaluation shows that IOIPG is seeking management control rather than just a financial investment,” he reportedly told lawmakers.
The report also quoted the Investment Commission as saying that there would be a “strict review” of the deal.
IOIPG executive chairman Tan Sri Lee Shin Cheng clarified in a separate statement that the group’s investment in TFCC had no political agenda, and the group would not seek management control if the deal materialised.
He also refuted claims that there were China investors in the company, as the issue of mainland Chinese investment is seen as a taboo when it comes to foreign investments in Taiwan. This is mainly due to the two nations’ history — mainland China considers Taiwan as a renegade province.
This is not the first time that IOI Group has terminated a deal. In late 2008 as the global financial crisis brewed, IOI Corp Bhd (fundamental: 1.7; valuation: 2.1) terminated the proposed purchase of Menara Citibank from owner Inverfin Sdn Bhd, forfeiting its deposit of RM73.4 million.
It is also not the first time that a deal between a Malaysian corporation and Taiwan has fallen through. In 2013, a Malaysian consortium led by IGB Corp Bhd (fundamental:1.2; valuation: 1.6) lost the chance to build the US$2.7 billion(RM9.87 billion) Taipei Twin Towers.
The Taipei city government cancelled the consortium’s award after the parties had failed to agree on terms for the contract.
IOIPG shares closed two sen or 0.95 % lower to RM2.09 last Friday, with a market capitalisation of RM7.9 billion.
This article first appeared in The Edge Financial Daily, on March 9, 2015.