Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 11, 2021 - October 17, 2021

Like most property developers, Country Heights Holdings Bhd (CHHB) is rich in assets and weak in cash flow.

Substantially controlled by Tan Sri Lee Kim Yew, the company has been rather quiet in the last few years. But last week, CHHB proposed the acquisition of assets — located in the vicinity of a disused mine in Seri Kembangan — valued at some RM554 million. The company also disclosed more details on a proposed 20% placement to raise RM58 million.

Among the assets that are likely to be injected into CHHB are Mines Wonderland Sdn Bhd (MWSB), a piece of prime waterfront development land measuring almost 38 acres in Seri Kembangan; and 4.3 acres in the vicinity of the Palace of the Golden Horses.

The assets belong to Lee and people related to him and they are to be paid through the issuance of new shares of CHHB valued at RM1.19 each.

The injection of assets will increase Lee’s stake in CHHB. But he already controls some 65% of the company and increasing his stake further does not add any value to him. Moreover, what CHHB needs is a stream of steady cash flow to jumpstart its operations instead of having more assets in its stable.

Hence, instead of injecting the assets, wouldn’t it be better for Lee to develop the properties jointly with CHHB?

Such a move would be viewed favourably because it does not bog down CHHB’s balance sheet and will not be dilutive to existing shareholders.

CHHB is also undertaking a 20% placement and the proceeds are to be used to beef up its healthcare business. They will also be used to reduce its borrowings, which come to a total of RM199 million. The shares are to be issued at an indicative price of less than RM1.20 each.

For a company that has been profitable only once in the last five years, what CHHB needs to do is to sweat its assets. Accumulating more assets or diverting cash to the healthcare business is not likely to change its fundamentals anytime soon.

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