Wednesday, October 26, 2011

Yet Another Multi Million Screw Up From IOI Corp?

I was shocked when I read the following set of news last night:

IOI Corp had signed a deal on 28 July 2011 to purchase 11,977.91 ha (29,597.42 acres) of plantation land from Dutaland. A 83 million deposit had already been paid.

Last night, just 3 months after signing the deal, IOI Corp said it's cancelling this deal.

And of course, Dutaland quickly responds by saying it's taking legal advice since it's not accepting IOI's reason for termination.

And as you can guess, Dutaland has asked that the deposit of 83 million not be remitted back to IOI Corp.

And this looks like yet another woeful corporate exercise from IOI Corp.

Just what on earth are they doing?

This is a 830 million transaction. You just don't sign any 830 million corporate deal without making thorough due diligence before agreeing to purchase. And IOI explanation on why it's cancelling this deal is simply a " non-compliance of certain terms and conditions".

This is simply pathetic and it reminds me of the recent Citibank debacle that happened back in Nov 2008.

Here's an article on Star Biz back then.

  • Saturday November 29, 2008
    IOI Corp should better explain why it’s losing its RM73mil deposit
    By P. Gunasegaram

    REALLY, listed companies should be a lot more careful before they pay a deposit for their proposed acquisitions. If they can’t complete their deals for any reason, they can lose hefty sums of money and raise needless suspicion over board integrity.
    Boards of listed companies and CEOs should realise that they have a statutory duty not only to their major shareholders but also to each and every shareholder – and there are many minority shareholders to consider.

    The least that listed companies should do when they abort their deals is to offer a full and fair explanation of why it was aborted, what were the events that had changed and why these things had not been anticipated in the first place.
    Take the deal called off inexplicably by IOI Corp after having signed on the dotted line less than three months ago and losing over RM73mil in deposits paid in the process.

    It had announced on Aug 28 the effective acquisition of Menara Citibank in Kuala Lumpur for RM586.7mil through the purchase of Inverfin Sdn Bhd which owned the building. Inverfin is owned in turn by Citigroup unit Citi Holding (50%), Singapore’s CapitaLand (30%) and Amsteel Corp (20%).

    On Thursday, Nov 27, IOI Corp, just a day short of three months of the earlier announcement, told Bursa Malaysia that it has decided not to proceed with the acquisition.

    The reason in IOI Corp’s own words: “However, due to the recent sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments, the Company has, after due and careful deliberations, decided that it would be in the overall best interests of the Company and its shareholders not to proceed with the Proposed Acquisition.”
    It further announced that the vendors were forfeiting the deposits paid of RM73.4mil together with interest and added that it was “seeking legal advice as to the propriety and quantum of the aforesaid forfeiture”.

    It is instructive to note what IOI Corp said in its original acquisition announcement: “The Proposed Acquisition will provide IOI with an immediate substantial rental income stream. With its choice location at the heart of Kuala Lumpur and well served by the surrounding infrastructure and amenities, Menara Citibank is presently enjoying close to 100% occupancy rate with quality tenants consisting of multinational companies and reputable companies in their respective industries.

    “In addition, the 50-storey Menara Citibank is well-maintained and well-equipped with high quality mechanical and electrical equipment and good security system. Its distinctive design and quality also distinguish itself from the competing office buildings in the vicinity.

    “On the whole, the Proposed Acquisition is a strategic move which augurs well for the IOI Group as it accords the Group with the golden opportunity to own one of the few available high-rise Grade A office buildings in Kuala Lumpur with first class location and prestigious address.”

    So, why is that changed in three months? Was there an exodus of tenants from Menara Citibank? Did the rental income drop? Was there a collapse in office space prices? Why is the acquisition not strategic anymore?

    Why could not IOI Corp have foreseen these problems earlier? After all, the subprime crisis was already upon us. Why did it pay the deposit which it now has most likely lost if it had felt there could be problems?

    IOI Corp’s explanation is poor at best and we really don’t know what it is at worst. Investors certainly expect a lot more from this company, once the darling of the stock market. And so should regulators. Minority shareholders certainly have a right to be seriously upset.

    Coming so soon after its recent debacle where it reported foreign exchange losses of over RM312mil for the quarter to end-September, the latest episode will put another dent in its reputation, largely unsullied until the forex episode.
See the similarities?

IOI Corp back in 2008, had also terminated a deal 3 months after signing the deal!!!!

And IOI lost its 73 million deposit back then. Me? I won't be surprised one bit if IOI loses 83 million ringgit this time for cancelling its deal with Dutaland.

It's simply embarrassing and if I am a minority shareholder in IOI Corp, I would be deeply annoyed to see what's happening. IOI Corp is supposedly one of our country's biggest corporation. In 2008, IOI lost 73 million by rescinding a deal to buy Citibank. 3 years later, IOI could now lose 83 million by cancelling this deal to buy land from Dutaland. What the hell? Does IOI have so many million ringgit to give away???

Would you blame any minority shareholder for asking 'Is IOI Corp the biggest water fish in corporate Malaysia?'

Good grief!

ps: Looks like Dutaland could get 83 million ringgit free!
ps: I got some barn yard. Does IOI want to agree to buy and then cancel to buy from me? :P


bonny b said...

Typical of egotistic high roller with overspent credit card, having to return the goods the next day..tsk tsk

yauwenchin said...

Normally they are caught between a rock and a hard place. Sometimes, it is embarrassing for such a big corporation to admit their mistake, sign of incompetence. Seriously, no corporation would like to be either be embarrassed or loss such a huge sum. Of course, some are surprise on why the corporation paid such a huge sum for such a small area. Of course, I believe they can rehabilitate the under yield plantation, they may have MISCALCULATED. Normally, in such an acquisition, there are many elements involve, including a satisfactory due diligence evaluation. It could be insufficient disclosure by the seller, hence, making the buyer miscalculate, hence, a non compliance is the only way out and of course, that is not good enough for the investors (big or small). For investor is simple, sell their shares when you thing the integrity of the management is compromise. Look at Sime, loss billions, and E&O case, after a while, investor will forget, and new investor will reemerge. Hard to find a perfect Company, as the perfect world does not exist. period. Trust me, the major shareholder hurts as much as the minority.

kine said...

From now onwards, IOI i beg that u
please! please! please! don't issue
any corporate exercise of raising
money from the minority shareholders
such as rights issue ,warrants or
loan redeemable. Your company value
might erode in future, & suggest u
to take action now to privatise your
company at higher valuation of >RM9
so that we might relieve of our burden of unnecessary support your
foolish acquisition endeavour !!!!

kine said...

Next time can you please bring some milk or any fruit from your barnyard
for all your faithful blog readers ?

ronnie said...

IOI's action should be viewed positively. It takes a big man to admit he is wrong.

There must have been a due diligence audit by IOI; the result which we are not aware of.

Moolah said...

ronnie: YES it takes a big man to admit they are wrong...

but.... have IOI?

Let's see....

3 years ago.. there was that 73 million lost in the Menara Citibank debacle.

And how much was the funky forex losses of over 312 million?

What diid IOI do?

They then did a 1.2 billion rights issue.

And they told the public?

Quote: "On the use of the RM1.2 billion proceeds, Lee said, “The funds will be kept for investment opportunities.”

On whether any investment targets had been identified, he said: “Not yet. When we have, we’ll let you know.”


See also

And now?

They are rescinding on a 830 million deal to buy plantation land.

Does it look as if IOI knows how to admit they are wrong?

Moolah said...

Heard some GANGSTA trying to muscle in on my barnyard!



kine said...

Notice that your barnyard have
someone been murdered before
a few past years ago. How is that happen ?