IOI Group Executive Chairman Tan Sri Lee Shin Cheng (2nd from left) holds a press conference on major corporate execises at at IOI at the Marriot Putrajaya in Putrajaya

PUTRAJAYA: The proposed listing and demerger of IOI Properties Bhd from IOI Corp Bhd will create one of the country's largest property companies with a net asset size of RM14.67bil, delivering average operating profits of RM1bil per year over the next three years, driven by its Singapore and China developments.

This is on the back of RM3bil worth of launches per year, as opposed to RM1bil currently.

The exercise will see IOI Corp selling its property assets to IOI Properties Group Sdn Bhd (ListCo), which is to be listed by year-end. The market capitalisation of IOI Properties Group would likely be at a 25% to 30% discount to its net asset value, implying a value of around RM10bil to RM11bil, said Tan Sri Lee Shin Cheng, the executive chairman and founder of IOI Corp.

He added that the net asset per share of the ListCo was RM4.46, while the initial public offering (IPO) price was yet to be finalised.

“Over the last 10 years, in terms of profitability, IOI Properties has been delivering the highest earnings among all the companies on Bursa Malaysia,” Lee told reporters and analysts during a briefing.

At present, the company has a gross development value (GDV) of about RM16bil and undeveloped landbank of 10,175 acres in Malaysia, Singapore and Xiamen, China.

“The demerger eliminates the holding company discount. Clear separation of businesses would result in premium valuations for both businesses, given their significant size and future earnings growth,” said UOB KayHian analyst Leow Huey Chuen, who maintains her strong “buy” recommendation.

The listing will entail some 3.29 billion shares, where existing shareholders of IOI Corp will be rewarded with a proposed distribution-in-specie of approximately 2.16 billion shares in the new ListCo on the basis of one ListCo share for every three IOI Corp shares held.

There is also a proposed non-renounceable restricted offer for sale (ROS) of approximately 1.08 billion ListCo shares on the basis of one ListCo share for every six IOI Corp shares held.

This ROS will raise some RM1.9bil, and will be priced at a 30% discount to the IPO price. Thus, this would indicate that the ROS shares are priced at RM1.76.

The demerger of IOI Properties from IOI Corp involves four transactions. First, there will be an internal reorganisation to streamline its property assets into the new listed company, IOI Properties Group.

This involves IOI Corp disposing of its entire equity interest of 99.8% in IOI Properties and its subsidiaries to the new listed company for RM9.77bil to be satisfied via the issuance of 2.19 billion new ListCo shares.

Secondly, IOI Corp will also dispose of certain other subsidiaries which are involved in property development, property investment and other property-related businesses to the ListCo for RM2.63bil to be satisfied via the issuance of up to 589.27 million new ListCo shares.

Thirdly, IOI Corp will dispose of two parcels of agricultural land, which will be converted to commercial or residential use; 500 acres in Bahau, Negri Sembilan and 1,279 acres in Segamat, Johor for RM276mil to be satisfied via the issuance of 61.89 million new ListCo shares.

And finally, the ListCo will acquire a 10% equity interest in Property Village Bhd from Summervest Sdn Bhd, a company controlled by Lee, along with the acquisition of a 10% equity interest in Property Skyline from Summervest for RM196.34mil to be satisfied via 44 million new ListCo shares.

The market value of all the appraised properties is RM18.17bil.

“The 44% discount for a big-cap stock with the potential of doubling its earnings within the next three years is very compelling. This translates into an operating profit of more than RM1bil by 2016,” said Leow.

There is also a proposed debt settlement of approximately RM1.8bil owed by IOI Properties to IOI Corp. This will be satisfied by issuing approximately 403.34 million new ListCo shares to IOI Corp.

Thus, the new ListCo, which will have an asset size of RM14.67bil, will only have a debt of RM500mil. This gives IOI Properties Group plenty of room for further expansion and acquisitions.

Lee, who will remain as chairman of the ListCo, expected profit margins from Singapore and Xiamen, China, to be in the range of 30% to 40%. GDV contributions from Malaysia and the overseas market would be on a 50:50 basis.

“Over the next five years, we are aiming for investment properties to contribute 40% to earnings, while the remaining 60% will come from development.

“The location of our Singapore developments are very good. We may want to keep some for property investment,” said Lee.

IOI Corp, which had been suspended since last Thursday at RM5.33, commenced trading yesterday in the afternoon trading session. The stock spiked to a high of RM5.70, before settling to close at RM5.46. Some 17.85 million shares were traded.