BACKED BY its overseas projects, Eco World International Bhd (EWI) is upbeat about its plan to list via the market capitalisation route. This is despite views that its lack of a profit track record could be a hurdle.

In a recent interview with The Edge, CEO Datuk Teow Leong Seng says EWI has been in consultation with the Securities Commission Malaysia (SC) and remains positive about the planned initial public offering (IPO).

“Our overseas projects are fully funded, meaning the loans are in place for all the phases. We are quite positive that the SC will see that we don’t have problems with cash flow,” he observes. “We should be fine based on this reasoning.”

EWI — a special purpose vehicle established by the major shareholders of Eco World Development Group Bhd (EcoWorld) on Aug 28, 2013, to acquire real estate assets overseas for development — would have been the country’s first property special purpose acquisition company (SPAC) to be listed on the Main Market of Bursa Malaysia.

(A SPAC has no existing assets but raises funds through an IPO to acquire them after it gets listed.)

However, EcoWorld’s plan for a SPAC listing was scrapped following discussions with the SC and various authorities. This is because the group had identified four overseas projects to be injected into EWI prior to the proposed SPAC listing. The group has three developments in London, namely London City Island (LCI), Embassy Gardens and Wardian London, and a suburb and business district development in Sydney, called West Village Parramatta, with a combined gross development value (GDV) of RM14.04 billion.

EWI aims to raise a bigger sum of RM2 billion from a direct listing by early next year compared with its initial plan for RM1.5 billion through a SPAC by the third quarter of this year. Under the proposed IPO exercise, EcoWorld (fundamental: 0.45; valuation: 0.90) intends to take up a 30% stake in the listed vehicle.

“When we first submitted our application last year [October], we didn’t have any projects. But the deals came in January this year,” says Teow, adding that a SPAC listing is a tedious process as the company needs to submit the qualifying assets to the SC for clearance and subsequently to the shareholders. “[With an IPO], investors will have more clarity on the projects we are doing.”

Nevertheless, an applicant opting for the market capitalisation test to list an entity must have been incorporated and generated operating revenue for at least one full financial year prior to its submission to the SC, according to the regulator’s equity guidelines.

Although EWI started selling the residential units in its LCI project in May, Teow says the accounting rules in the UK and Australia are different from Malaysia’s. Property players are not allowed to recognise revenue until a project is completed and sold. In fact, no profits will be recognised over the next three years, although there will be sales and cash flow.

“We have to argue our case with the SC because this is a different business model, supported by facts and figures,” says EWI executive vice-chairman Tan Sri Liew Kee Sin in the same interview. “We think our case is strong but it’s still up to the SC to evaluate.”

In a press conference on June 17, Teow noted that the two blocks in LCI, which is located in east London, had garnered a take-up of 84% as at June 15.

Apart from the upcoming launch of West Village Parramatta within the next few months, Eco World Ballymore Holding Co Ltd — a joint venture between EcoWorld and UK-based Ballymore Group that will be developing the three residential projects in London — is also working on the launch of the other two projects in the city before the end of this year.

It is worth noting that the three London sites have been acquired by Eco World Investment Co Ltd (EW Investment), a private vehicle controlled by Liew and Eco­World executive director Datuk Voon Tin Yow.

EW Investment entered into an agreement with Ballymore Group on Jan 11 to acquire a 75% stake in Eco World Ballymore.

The Sydney site was acquired by Eco World Development Sdn Bhd in May via its 100%-owned subsidiary Eco World Sydney Development Pty Ltd (EW Sydney).

Liew and Voon are directors of Eco World Development as well.

In the interview, Liew states his concerns about EcoWorld’s gearing ratio, which stood at 0.5 times after its recent restructuring exercise. The company completed a 20% private placement in May and will use the RM638.4 million raised from it for landbanking and investments. “If we get all the overseas projects and put them under EcoWorld, our gearing will go through the roof,” Liew says, adding that by having two entities, it will be more manageable.

EcoWorld has over 5,000 acres and ongoing projects with a GDV of RM65 billion in Penang, the Klang Valley and Iskandar Malaysia in Johor.

When asked whether the group would consider listing overseas, Teow remarks that it is not so easy to raise money these days. “It has got to be close to where people understand us.”

Having two listed vehicles will balance the group’s portfolio but it may also invite competition from the same pool of investors. However, Liew argues that the group is offering investors an opportunity to invest in a different market via EWI. “For the current economic times, it is good to have two listed vehicles. So, you have people who value your risk profile differently,” says Liew whose chairmanship at Battersea Project Holding Co Ltd (BPHCL) expires in September.

BPHCL, which is jointly owned by S P Setia (40%), Sime Darby Bhd (40%) and the Employees Provident Fund (20%), is the owner of the Battersea Power Station project in London.

“If you are an institutional fund or government-linked fund that can’t buy properties overseas, you can buy a Malaysian stock that owns properties overseas. I think EWI will be well received,” Liew concludes.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on June 29 - July 5, 2015.

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