KUALA LUMPUR: IOI Properties Group Bhd may revisit the acquisition of Shenton House in the future, potentially when the group's financial position strengthens and propery segment's earnings prospects improve.
"Acquiring Shenton House now could raise IOI Properties' net gearing, impacting its bank balance due to recent asset acquisitions.
"It may be prudent for IOI Properties to reconsider the acquisition later, especially after unleashing full value from its jewel assets in Singapore, namely IOI Central Boulevard and Marina View Residences," said an insider who declined to be named.
Lee Yeow Seng, the chief executive officer and major shareholder of IOI Properties, had proposed selling Shenton House to IOI Properties for joint redevelopment.
However, the property group decided to reject the proposal, influenced by its substantial existing exposure to the Singapore market and other capital commitments.
Over the past year, IOI Properties has made several significant acquisitions totalling RM1.21 billion to expand its investment assets portfolio in preparation for a potential listing of its investment properties.
These acquisitions included Tropicana Gardens Mall in Petaling Jaya (RM680 million), W Kuala Lumpur Hotel (RM270 million), Courtyard by Marriott Penang (RM165 million) from Tropicana Corporation Bhd (TCB), and two land parcels in Pantai Kok, Langkawi from the family of TCB founder Tan Sri Danny Tan Chee Sing.
Hong Leong Investment Bank Bhd (HLIB) viewed the decision to reject Lee's proposal as a positive and beneficial move, as it addresses potential conflicts of interest between Lee and IOI Properties, mitigates competition between Shenton House and the group's developments, and ensures transparency in redevelopment activities.
Shenton House, located in Singapore's Central Business District, consists of 204 strata units.
Redevelopment is expected to take place from the first quarter of 2027 (Q1 2027) to Q1 2031.
Lee's private vehicle, Shenton 101 Pte Ltd, acquired the property in a tender for S$538 million (RM1.9 billion) as the sole bidder.
Lee, whose family controls a 65.67 per cent stake in IOI Properties, proposed disposing of Shenton 101 to IOI Properties in June.
In a note on Thursday, HLIB said that rejecting Lee's offer allows IOI Properties to generate revenue without requiring capital investment or assuming financial risks.
However, the inclusion of a first right of refusal clause leaves the door open for IOI Properties to acquire Shenton House in the future.
HLIB said the board and management of IOI Properties are aware of shareholders' concerns regarding the group's capital commitments and elevated net gearing.
"In fact, we view this agreement to be lopsidedly favouring IOI Properties at the disadvantage of Lee as it shifts the financial burden and uncertainty risks to Lee's private vehicle side while continuing to allow IOI Properties to participate in the development," it added.