KUALA LUMPUR: Khazanah Nasional Bhd managing director Datuk Shahril Ridza Ridzuan has quashed the notion that it is bailing out Eco World Development Group Bhd by merging it with UEM Sunrise Bhd.
Shahril also assured that the sovereign wealth fund's Bumiputera policy would remain in tact despite the merger.
Stressing that the merger would not involve any cash but an exchange of shares and warrants, Shahril said the proposed merger would create a stronger and more competitive property developer.
"This is a commercial proposal that aims to increase the value for all shareholders by creating a solid property developer that will be among the most competitive in Malaysia," Shahril said in an email to Berita Harian.
Khazanah wholly-owned UEM Group Bhd had last week proposed to merge UEM Sunrise and Eco World in a share swap deal estimated at RM2.6 billion by Citi Research.
UEM Group was expecting a decision on the proposal from the board of UEM Sunrise and Eco World by October 30.
Shahril said it was not true that the merger would affect Bumiputera holdings.
He said Khazanah, which owns 66 per cent of UEM Sunrise through wholly-owned UEM Group Bhd, would remain the largest shareholder with a 43 per cent stake in the merged entity.
Collectively, Khazanah and other government funds such as Lembaga Tabung Haji will hold more than 50 per cent of the shares in the merged entity.
He said any Bumiputera policies and agendas that should be supported by GLICs as shareholders in the merged company would be preserved.
"We also see this proposed merger as an effort to strengthen the capabilities of Bumiputeras in the real estate sector. We are confident that this merger will benefit all shareholders including Bumiputera shareholders."
Shahril said the interests of minority shareholders in UEM Sunrise dan Eco World would also be protected.
In a separate interview, Eco World director Tan Sri Rashid Manaf said it was not a "sick" company and that the merger was not about saving it.
Rashid dismissed criticism that Eco World, which own large projects in Malaysia and the United Kingdom, was financially distressed.
"I would like to emphasise that Eco World is not in a 'desperate' condition and needs to be rescued. The claim is far from the truth.
"A simple review of our latest financial result for third quarter (Q3) of 2020 clearly shows that despite the various challenges facing the property sector plus the effects from Covid-19 oubreak, Eco World keeps making a profit.
"In Q3, the group recorded a net profit of RM68.7 million compared to the losses recorded by other developers including UEM Sunrise (RM115.8 million losses for this year until the second quarter 2020)," he noted.
On Eco World's high debt position, Rashid said its net debt stood at RM2.98 billion significantly lower than UEM Sunrise's net debt of RM3.4 billion.
"It is important to note that property is an industry that requires intensive capital. Therefore, our net debt position is not something out of the ordinary.
"The important part is our ability to pay off this debt. The unbilled sales of a company should also be taken into account," he said.
He explained that the future revenue (i.e unbilled sales based on the SPA signed) of the company and its joint ventures stood RM4.425 billion as at August 31 this year.
Meanwhile, Shahril said property developers should consider consolidation given the challenging real estate market in the few years, which was aggravated by the Covid-19 pandemic.
"Studies show that large property developers are more capable of overcoming challenges and performing better than smaller property developers."
He noted that UEM Sunrise was focusing on land ownership with substantial land reserves in Johor, and high-rise residential segment, which was very challenging now.
Shahril said the proposed merger would enable the two companies to leverage on their respective strengths, namely UEM Sunrise on land ownership and Eco World in integrated urban development and industrial parks.
He pointed out that the board of UEM Sunrise and Eco World would still need to conduct due diligence and carefully review the proposals before deciding on taking the next step to obtain shareholders' consent.
