SP Setia: Is Liew conflicted?

By Jose Barrock and Khairie Hisyam

Since early May 1996, Liew Kee Sin has been at the helm of SP Setia Bhd, and arguably transformed the company into Malaysia’s most successful developer. With him leaving in March 2015 (at the latest), what can or will Permodalan Nasional Bhd (PNB) which owns close to 70% of SP Setia do? What’s worse is that Liew seems to have started his own property outfit together with other SP Setia veterans who have left, and starting the fledgling EcoWorld Development Sdn Bhd. 

While this could be a double whammy for both SP Setia and PNB, as it may have to grapple with heightened competition, questions as to a conflict of interest do arise. 

________________________________________________________________________

For the past 17 years, Liew Kee Sin has been at the helm of developer SP Setia Bhd. And he has successfully grown the company to what it is today — Malaysia’s largest developer by market capitalisation and, arguably, reputation.

But following Permodalan Nasional Bhd (PNB)’s wresting of control of SP Setia in 2012, PNB struck a deal with Liew that he would remain group president and chief executive officer for three years following the takeover.

That means Liew is leaving by March 2015 — at the latest.

“If I leave early, it lapses,” Liew was previously quoted as saying.

Some even expect him to leave as early as the first quarter of 2014, since he still owns a 2.76% stake and his final put option tranche at RM3.95 per share would be due in March 2014. Given Liew’s imminent departure, what will PNB do without him?

While there has been talk about succession planning at SP Setia, most scoff at the idea.

Judging by recent events though, it would seem that Liew does have some animosity towards PNB, especially due to the way PNB launched their takeover in 2011, it seems without even informing Liew.

Thus EcoWorld Development Sdn Bhd could just be his way of getting back at PNB.

Some of Liew comments over the past few months have been quite uncharacteristic.

The other side of Liew  

In July this year, SP Setia, Sime Darby Bhd and the Employees Provident Fund (EPF) organised a ground-breaking ceremony for their highly anticipated Battersea Power Station redevelopment project, worth some £8 billion (RM39.8 billion) in gross development value. And newsmen who were there said Liew was hogging all the limelight.

Some even said that he seemed to be promoting himself more than the actual development.

“There were a few hundred people present maybe more than 500…some were with their wives, all flown in from Kuala Lumpur…and flown in business class at that too,” one of those present at the ground breaking ceremony said.

“It was all about him (Liew) basically, not so much Batttersea,” a newsman said.

This apparent show of pomp and grandeur raised a lot of eyebrows.

“Would there have been such expenditure if Liew was not leaving, and if it was his own company or if he had more than his two odd percent (2.76%)?” the newsman asked.

Even during interviews in June this year, Liew had made statements which were not positive for SP Setia or PNB in general.

To recap, the feud is understood to stem from PNB’s takeover bid of SP Setia.In September 2011 PNB offered RM3.90 per share after crossing the 33% threshold via direct and indirect holdings, which the SP Setia board deemed “fundamentally undervalues the company”.

According to reports from the time, the board thought RM4.20 was closer to the real value of the company.

The offer was then raised to RM3.95 per share by January 2012 or some RM6 billion to increase its stake in S P Setia to just below 70% via its two funds Yayasan Pelaburan Bumiputra and Skim Amanah Saham Bumiputera.

On how SP Setia would fare after his departure, Liew had told an English daily, “I don’t think PNB will run down its own investment. It may not grow but it will not run it down.”

He also quipped that SP Setia’s share price had not performed in contrast to competitors such as Mah Sing Group Bhd and UEM Sunrise Bhd which were both up in excess of 50% compared to SP Setia’s 8.4% year to date gain back then.

And he had also gone on record to say that if PNB had not taken over a chunk of the company’s stock, SP Setia’s shares would be about 50% higher at RM5 compared to the price of RM3.34 in June this year when the interview was held. (Liew based this notion on the performance of other property counters, such as Mah Sing Group Bhd and UEM Land which had gained more than 50% back then in June)

At the interview when asked about his departure he had said, “I’m not staying on and will not stay past March 2015. There’s no turning back, it’s over for me. Checkmate…I’m just doing my job as a CEO to the best of my ability,” Liew had told the English daily.

Liew a victim?

As at mid-August 2011, Liew had 11.27% or 200.5 million shares in SP Setia.

Liew disposed of a chunk of his shares accepting PNB’s RM3.95 offer and ceased to be a substantial shareholder in March 2013.

Back then Liew said he is “highly appreciative” of PNB’s put option offer as it will enable him to focus on doing his best to grow the underlying value of the company.

He now has 2.76% or 67.8 million shares, which means he could have made as much as much as RM524.2 million if he disposed of his shares at RM3.95. He has made it clear that in Mach 19 next year he will dispose off the remaining 2.76% or 67.8 million shares to PNB at RM3.95.

“If the market price is higher, I can sell it to the market,” he had said at his interview in June this year with  the English daily.

In terms remuneration, Liew was paid what many may consider a hefty RM11.6 million in FY2012.

Hence some find it difficult to feel sorry for him, despite him having his company taken control of by PNB.

“It’s very difficult to say he is a victim, he was a highly paid CEO and he made half a billion from the sale of his shares…I certainly don’t feel sorry for him…it’s just business,” a fellow property developer said.

A looming conflict of interest

Although Liew is adamant that he is not joining EcoWorld, and insists that he is retiring, the market scuttlebutt has it that the company is his vehicle.

Additionally, he was previously coy on his future direction after  SP Setia. When asked by a business publication in April this year whether he would go into property development after leaving SP Setia, Liew merely responded, “Wait and see.”

A property market observer told KiniBiz that even EcoWorld’s “beautiful” website hints at Liew’s influence. “I’m willing to bet RM10,000 that Liew is the one behind it…(the website has) got his taste and ‘signature’.”

PNB did not reply to questions sent by KiniBiz on, among others, whether the unit trust fund felt that there was a conflict of interest with Liew still at SP Setia till 2015 while his close associates and son especially,are operating a rival developer, EcoWorld.

Issues are bound to crop up in instances when there is a tender and both companies bid for the job, or if there is a sale of land and both companies pursue the same assets.

“There is surely a conflict of interest. It looks as though Liew is waiting for PNB to react and remove him… maybe pay him off.”

“Maybe if the son was older it would be different…the boy is in his early 20’s,” a market watcher said.

So is the ball in PNB’s court, or should Liew step down from SP Setia and willingly walk away?

SP Setia without Liew

A property developer highlights that when PNB made a takeover offer for SP Setia’s stock in September 2011 the founder of SP Setia, Wong Chee Kooi (who started the company in 1974) had told a business publication, “The key question is, can PNB grow SP Setia further without the current management?” Wong had asked.

“The question now is can PNB grow SP Setia while competing with the management that has been instrumental in charting its successful course all these years?” the veteran developer asked.

Liew’s impending departure would definitely impact investor confidence in SP Setia, opined an industry observer. “I believe the market views SP Setia as Liew and Liew as SP Setia.”

“The size of a ship is important but the more important question for investors or analysts is who is the captain of the ship and (what is) his vision for the future,” added the observer.

However, another property market insider, speaking on condition of anonymity, said that Liew has been very crucial in SP Setia’s rise — perhaps too crucial to replace?

“He is the man that has relaunched SP Setia and what SP Setia is today I would say is for a good 80% thanks to him,” said the market insider, adding that when Liew leaves, the insider is “personally expecting SP Setia to start falling apart quite soon”.

“He just needs to make the call and automatically the best (SP Setia) members will follow him,” said the market insider. “He has the reputation that he has because of his capabilities and not because of SP Setia. Unfortunately the reverse is not true.”

Tell-tale signs of talent exodus

Notably, the signs of a talent exodus are there. Word from the grapevine is that about 200 people have already left the company in this year alone.

Among them are senior members who have been with the company for years. One of them is Chang Kim Wah, a long-serving executive director of SP Setia who tendered his resignation in April this year only to emerge as the chief executive officer of EcoWorld.

Chang followed in the footsteps of Eddy Leong Kok Wah, who resigned from SP Setia in February this year, and S Rajoo, who resigned from SP Setia last year. Both are also key men in EcoWorld.

Notably the senior management team of EcoWorld bar Liew’s eldest son Tian Xiong were completely made up of former SP Setia top brass.

And concern appears to have been brewing within the company over the exodus. A very telling fact is how the company’s shareholders approved its Employee Share Grant Plan (ESGP) in February this year. Of concern is the fact that the plan contains a component whereby employees and executive directors may be awarded free shares without restrictions in terms of retention period or restriction on transfer.

Alarmingly, the amount of free shares that can be awarded may go up to 15% in aggregate of all the group’s issued and paid-up share capital, excluding treasury shares if any, at the point when the awards are made.

Given that PNB owns nearly 70% of SP Setia, the ‘free shares’ plan, which naturally would be detrimental to shareholders in terms of its huge dilutive effect, would not have proceeded without PNB’s say-so. The implication, then, is that PNB conceded to this bitter pill in effort to stem the tide of talent exits and retain the foundation of SP Setia’s success — SP Setia’s excellent human capital.

EcoWorld — new market king-in-waiting?

While Liew has gone on record to deny his involvement with EcoWorld in response to KiniBiz queries, reiterating his intention to retire after leaving SP Setia, industry observers KiniBiz spoke to say otherwise.

If Liew does end up in EcoWorld, can EcoWorld unseat SP Setia as the leading developer in Malaysia?

“I believe he (Liew) has all the right ingredients to make (EcoWorld) a top developer. We are in a people business (in property),” opines the market observer. “Good people are hard to come by in the property industry. If you have a good culture and team and management, you will win big.”

The market insider who declined to be named echoed this sentiment. “Once (and if) he publicly appears there then I cannot see anything against Eco World becoming the new market driver. It may take a few years (to do so) but the process can be shortened if Liew chooses the right partners — as he seems to be doing.”