Some two years ago, an analyst remembers telling a cash-rich property group to buy rivals with land to take advantage of a weak stock market.
But worries over takeover issues led the group to buy land instead. In hindsight, it was a major opportunity lost.
Now, major listed property players in Malaysia are in a bind because three recent deals to create much bigger companies are likely to push them to do the same if they want to remain attractive to investors.
"They have no choice, some of them don't want to be off the radar screen of investors," said CIMB research head Terence Wong.
The flurry of deals comes as the stock market hit record highs. On November 4, UEM Land Holdings Bhd offered RM1.4 billion to buy rival Sunrise Bhd, followed by news of a merger between Malaysian Resources Corp Bhd (MRCB) and IJM Land Bhd to create a group with a market value of RM7 billion. Then, Tan Sri Jeffrey Cheah proposed to combine his companies Sunway Holdings Bhd and Sunway City Bhd (SunCity) in a RM4.5 billion deal.
The first two deals reflect the government's intent to create bigger companies to lure more foreign investors to Malaysia's stock market, analysts said.
UEM Land is ultimately controlled by state investment arm Khazanah Nasional Bhd, while both MRCB and IJM Land have the Employees Provident Fund (EPF) as major shareholders. It is quite clear that the EPF is driving the merger, analysts said, as it seeks to develop the strategic and massive Rubber Research Institute land next to Kota Damansara, Selangor.
Both deals are also about securing expertise as the buyer is in a hurry to grow. UEM Land needs Sunrise for high-end property development and marketing, while EPF wants a developer that could build townships (IJM Land) as well as commercial projects (MRCB).
But the Sunway deal is more about the ability to fight for bigger jobs and address the liquidity issue. A major problem for Malaysian property companies is there are not enough shares readily available for trading, something that foreign investors love, said Maybank IB's analyst Wong Wei Sum.
This means the stock price will have a tough time catching up to its fair value. In SunCity's case, it has been trading at around RM4, while analysts tag its fair value at almost RM7.
"If you want to have better value, you go for the size," she said.
But some property executives contend there are downsides to becoming a bigger group.
"You could end up being a lumbering giant," one said. He cited how Mah Sing Group Bhd was able to buy some 25 hectares of land in Batu Ferringhi, Penang, for RM157 million. Bigger rivals had also bid for the land but Mah Sing was able to win as it moved faster than the competition.
By Business Times
