By Khairie Hisyam
Whether as a blank-cheque Spac listing or through a normal IPO, listing a second property developer under the Eco World brand brings inherent conflict with the existing Eco World Development Group. Will market regulators allow such a situation?
______________________________________________________________________
Imagine two listed companies on Bursa Malaysia, both do the same thing, count a similar line-up of board members, and they share the same brand. What springs to mind immediately is one word: conflict.
Liew Kee Sin
When the official word was first out in October 2014 that Liew Kee Sin intended to list Eco World International (EWI) as a special purpose acquisition company (Spac), the listed Eco World Development Group Bhd (EWDG) announced it would subscribe to a 30% stake for RM562.5 million.
This valued the entire Spac at RM1.9 billion. Both Liew and EWDG were going to offer a right of first refusal to existing projects to the Spac by way of qualifying acquisition.
And the offers may yet stand since EWI is still marching to Bursa Malaysia albeit taking a different road than planned. However, the new road is still littered with conflict for Eco World at large.
Spac governance conflict averted
Had EWI’s listing happened via the Spac route, these offers would have raised governance issues. Dropping the Spac option in favour of an initial public offering (IPO) exercise averted this.
For EWDG, its major shareholder Eco World Development Sdn Bhd was prepared to offer a right of first refusal for EWI to acquire its entire stake in the West Village mixed development project in Parramatta, Sydney’s second central business district, at original acquisition cost plus holding costs, as well as any planning or development expenses incurred.
Liew was also prepared to do the same. His private vehicle Eco World Investment (not to be confused with EWI or Eco World International ), which in January this year signed a joint venture (JV) with Irish developer Ballymore Group for three London projects worth over RM13 billion in gross development value, was going to offer EWI its interest in the JV on similar terms as the West Village project offer.
All four are strong projects. Their locations fit EWI’s intended focus on the UK and Australia perfectly, said EWDG.
Going for Spac over a traditional IPO has one particular advantage: faster listing. Meet the application criteria, gain the Securities Commission’s (SC) approval, and the Spac will have raised funds it can then use to hunt for an asset.
In comparison, an IPO takes a longer time. An IPO requires an established operating history, as well as profitability track record or market capitalisation, depending on which test a company prefers to take on its way to Bursa Malaysia. The faster test requires at least one full financial year of profitable operation, which may require some initial gestation period too before profit flows in.
However, the point is moot now that Liew has opted for a normal IPO. The downside though is that he would not have the opportunity to inject the three London projects into a listed entity at potential profit.
Looming conflicts on Bursa
Regardless of whether Liew lists EWI or Eco World Investment, major conflicts remain in respect of EWDG, of which is he is the board chairman, as well as father to a major shareholder and executive director.
Simply put, if the listing of EWI goes through, Bursa Malaysia would see not one but two listed property developers sharing the Eco World brand. It would be a heretofore unseen strangeness – while it is not uncommon to see multiple listed companies under the same overarching brand, these companies are typically involved in different sectors.
An argument may be made that EWDG and EWI would operate in different markets – the former in Malaysia and the latter overseas. In fact, a common point is that by having a stake in the overseas operator, EWDG would have less strain on its balance sheet, while still having exposure in international markets.
However, the overriding refutation is shareholders’ interests. The simple truth is that EWI would be a glass ceiling for EWDG’s growth prospects, confining it to Malaysian shores when none of its peers have the same limitation in terms of future market expansion.
And by extension, the simple investor who buys shares in EWDG but not EWI would be denied any potential benefit that would have come from EWDG going international.
It also raises awkwardness and conflict for both companies’ management and board.
If EWDG’s board chances upon a promising opportunity in London and passes it to EWI, this would, in fact, be to the detriment of EWDG’s shareholders and may ultimately amount to breach of duty to uphold shareholders’ best interests at all times.
In fact, this is already happening. The West Village project in Parramatta, Sydney, which is going to be offered to EWI by EWDG’s major shareholder, was originally going to be injected into EWDG itself.
It is a clear case in point of how minority shareholders may lose out from the scenario that may unfold if EWI lists on Bursa Malaysia.
Had EWDG undertaken the project itself, the entire profit would have gone to it. If EWDG passes up on the opportunity in favour of EWI instead, it will only get whatever its 30% stake in EWI reaps from the profit by way of dividends or bonus issues.
Even more troubling is the position of conflict Liew himself would be in. A previous KINIBIZ investigation found that EWI’s board boasts a fresh line-up of well-known corporate names. And the one common board member between EWI and EWDG is Liew.
This means Liew would be square in the middle between EWI and EWDG shareholders. He would be obligated to act in the best interests of both bodies of shareholders at all times.
However, given both are property developers, their interests would be mutually exclusive. He would more often than not have to uphold the interest of one body of shareholders at the expense of the other – simply a ludicrous position to choose to get into.
Man of many conflicts
Even before contemplating such a ludicrous situation on Bursa Malaysia, Liew had been walking a long trail of conflict that can be traced to his final days at SP Setia, where he was the chief executive officer for nearly two decades up to April 2014.
To recap, a takeover of SP Setia by major shareholder Permodalan Nasional Bhd (PNB) eventually led to a deal that Liew would exit by March 2015 at the latest. He took a bow in April 2014, but not before making damaging remarks on SP Setia in public while still in office.
Liew was also observed to be lavish in bringing a horde of guests to London for the launch of Battersea Power Station redevelopment project in July 2013, a 40:40:20 JV between SP Setia, Sime Darby, and the Employees Provident Fund. This raised questions on whether the company would have done so had Liew was not leaving.
Liew Tian Xiong
Then in September that year, a young property developer called Eco World emerged, led by former SP Setia top executives known to be Liew’s associates. Liew’s son Tian Xiong was also on its board and became joint offeror when Eco World undertook a reverse takeover of a little-known developer called Focal Aims Holdings Bhd.
For Tian Xiong’s part in the takeover, Liew and wife forked out RM124.1 million, based on Tian Xiong’s 35% stake of the 65.05% stake that the takeover acquired for RM230.7 million. At this time, Liew was still the SP Setia CEO and denied to KINIBIZ any involvement.
Then the following year, Liew left SP Setia in end-April 2013, though he remains as the Battersea chairman, as well as the managing director of the company’s Qinzhou development project in China. While he cited a desire to retire, he emerged as Eco World board member just days into May.
This raised fresh conflict between his Battersea role and link to Eco World. In fact, Liew himself admitted to the conflict in an interview with The Star in March 2015, although he remains adamant that he has made proper declarations and that it is up to shareholders whether he should stay or go.
However, Battersea shareholders have strangely seemed reluctant to show Liew the door despite the conflicts of interest that have risen.
In any case, the rotation among the three shareholders to appoint the chairman of Battersea will mean Liew leaves by September 2015 to be replaced by a Sime Darby appointee.
In October 2014, news of Liew’s proposed Spac emerged, with the existing Eco World announcing its intention to subscribe to 30% equity for RM562.5 million. Strangely, the Spac uses the Eco World brand and name.
By January 2015, Liew’s personal vehicle Eco World Investment, co-owned with long-time lieutenant at SP Setia Voon Tin Yow, signed the Ballymore JV. At this point, Liew was still the chairman in Battersea, which is located in the same city as the three Ballymore projects.
KINIBIZ previously explored this long trail of conflict in more depth here.
Is Liew hijacking Eco World?
More immediately, his Ballymore deal as well as earlier application to list a Spac raises pressing questions on whether he is hijacking the Eco World brand.
The proposed Spac uses the term “Eco World” in its name. So does Liew’s personal vehicle Eco World Investment, with which he embarked on a JV with Ballymore. He even registered the Eco World trademark in the UK for his own proposed Spac.
Yet he does not own the Eco World brand in Malaysia – it was registered by Eco World Development Sdn Bhd, EWDG’s major shareholder, according to a previous KINIBIZ search on the Intellectual Property Corp of Malaysia’s database.
Recall that Liew has been a board member of EWDG since early May 2014, well before the Spac proposal and Ballymore JV. Why is Liew as an EWDG director using the company’s name and brand for a personal venture?
Hijacking the brand name goes directly against his duty as a director to promote the best interests of EWDG’s shareholders at all times. In particular, he breached this duty by denying the shareholders the opportunity to benefit from the Eco World brand overseas regardless of whether they actually capitalise on such an opportunity.
And he went further by inking the JV with Ballymore using his personal vehicle. As a director of a property developer coming across a property development opportunity, shareholders had every right to expect that Liew would have brought the opportunity to EWDG’s board and management first for consideration.
This is a three-way conflict because he is still chairman of Battersea which is engaged in property development in London not far from the site where the JV with Ballymore is developing its property. What is Liew doing developing as site which may be in competition with Battersea itself?
The conflict in fact could not be more clear in terms of one of the Ballymore JV projects: Embassy Gardens. This project is a just a stone’s throw away from the Battersea site, according to promotional material by Eco World.
Instead, Liew effectively took said opportunity for himself, denying EWDG (or Battersea) the opportunity to tie up with Ballymore. One of the director shareholders look to for upholding their best interests has instead cannibalised on their prospects for his own gain.
Will EWI be allowed to list?
The immense potential from conflict arising from listing EWI raises another question: will market regulators allow such a situation to arise?
In this case the regulator in question would be SC. And Chapter 4 of the Equity Guidelines, issued under Section 377 of the Capital Markets and Services Act 2007, is dedicated to the subject of conflict of interest.
The chapter stipulates that should a conflict-of-interest situation exist when applying for public listing, the applicant must declare the nature and extent of the conflict to SC and propose how to resolve, eliminate, or mitigate the conflict.
In addition, the guidelines also offer some examples of conflict-of-interest circumstances, as well as what an applicant should consider to determine if a conflict-of-interest situation arises.
The potential Eco World conflict following EWI listing fits some of the descriptions under the guidelines. In particular, sharing one or more common board members would compromise their ability to act in shareholders’ best interest given competing interests in two similar companies.
However, whether this would be the proposed IPO’s undoing remains up in the air as scarce details are available at this point on the matter. There may be room for the conflict to be mitigated sufficiently, although major sticking points examined earlier in this article would likely remain short of a complete divorce from the Eco World brand.
In short, much would depend on SC’s judgment and how EWI resolves or mitigates the inherent conflict its listing brings when applying to SC. On currently available information, however, it is doubtful that Liew can list EWI conflict-free.
And if SC feels that way too, EWI may not be able to list at all – whether through Spac or IPO.
You must be logged in to post a comment.