KUALA LUMPUR: IOI Properties Group Bhd (IOIPG) should revisit the offer by its group chief executive officer (GCEO) to acquire Singapore commercial property, Shenton House.
Shenton House, owned by GCEO Lee Yeow Seng through his private entity Shenton 101 Pte Ltd, is a redevelopment project in Singapore's central business district (CBD), intended to transform an old office building into a mixed-use development with office and retail component.
According to Hong Long Investment Bank Bhd (HLIB Research) a potential acquisition by IOIPG now would be more viable, and could benefit the company's growth.
The research firm said conditions in its favour include improved occupancy rates at IOI Central Boulevard (IOICB) office building, record-high office transactions, and declining interest rates.
The note comes a day after Lee retracted a resolution for vote by shareholders to allow his continued engagement in the Shenton House project.
Lee must get shareholders approval for the Shenton House redevelopment project as it is deemed competitve business
To recap in August this year, the board of IOIPG rejected its GCEO Lee's offer to sell the Shenton House to the company for S$538 million, citing high capital commitment and concentration risk due to its existing developments in Singapore.
The situation created a conflict of interest, as Lee's private interests in Shenton House would potentially compete with IOIPG's business.
To mitigate this, IOIPG entered into a management agreement with Shenton 101, assigning IOIPG the responsibility of managing Shenton House's construction and leasing in exchange for management fees.
HLIB in its note said that IOIPG's decision to reject the acquisition proposal earlier in August was a missed opportunity, as Lee had offered Shenton House to IOIPG at cost, showing good faith towards minority shareholders.
While the acquisition would increase IOIPG's net gearing, the firm stated that the current declining interest rate environment makes this manageable.
"With about 82 per cent of the group's debt in Singapore dollar on floating rates, interest costs are expected to decline as the US Federal Reserve (Fed) rate cut cycle progresses, potentially bringing overall rates to well below 3 per cent.
"This anticipated decrease in interest rates would help mitigate the impact on IOIPG's gearing from the acquisition," it added.
Regarding the board's concerns about high concentration in Singapore, HLIB said that IOIPG's portfolio is in fact well-diversified across Malaysia, Singapore, and China and not particularly concentrated in a single region.
"By end-2024, the group's Singapore landbank will be fully utilised with the commencement of IOICB and launch Marina View project, thus the Shenton House is a strategic addition to sustain its growth in Singapore," it said.
The firm noted that IOIPG's Shenton House project together with IOICB and Marina View fits in the Singapore transformation plan for the CBD, which is poised to lift real estate value in the region over the next decade.
Lee in his letter to the board of IOIPG seeking a withdrawal of the resolution said his decision was made after considering amongst others, the feedback received from various institutional shareholders relating to the resolution.
He said he wishes to reconsider the options available to address the potential conflict of interest position and plans to engage further with the institutional shareholders to constructively address their concerns.
"As the redevelopment works on Shenton House (which will give rise to the conflict of interest position), are scheduled to only commence in the first quarter of 2027, Mr. Lee intends to reevaluate the options available and take the appropriate steps to address concerns held by all relevant stakeholders," according to the Bursa Malaysia Securities filing.