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Pro-rakyat economists have called for urgent scrutiny of the proposed UEM Sunrise-Eco World merger. The main concern is, according to them, is the deal a way to bail out a highly indebted developer? I'll try and explain some of the key contentious issues about the merger.
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1) Loss of control. UEM Sunrise is technically the people's company through UEM Group vai Khazanah and also LUTH. A merger could dilute Khazanah's shares to about 40% from 66%, LUTH's to under 4% from 7%. EcoWorld will have about 24% of the combined entity.
*note that UEM maintains that it will remain in charge of the new entity although critics are challenging this. The latter claimed Eco World's management will lead. Critics thus ask why would Khazanah willingly cede control?
2) Eco World's debt pile. The developer's gearing ratio is at 78% (July 2019), or total debt of some RM3 billion against total equities of RM4 billion. Gearing ratio measures a firm's leverage by assessing its debt vs equities. If debt is higher than equities default risk rises
*Questions were raised as to why Khazanah would want to incur more debt. Indirectly, the new debt becomes our debt. There is also suspicion that Eco World needed Khazanah as a backer because they could borrow more.
*UEM Sunrise has much lower borrowings and also access to cheaper land. UEM Group, however, said Eco World's assets have potential despite its smaller landbank.
3) Why now? The timing of the merger is suspect. Critics of the merger said Khazanah would be investing in a high-end property company in the middle of a downturn. Then there is the question of who gets to stay and who or how many would be out of jobs.
4) Liew's history. The tycoon founded SP Setia but later sold it to PNB at RM3.95 per share. It's dropped to just 75 cents now, critics noted. Liew was also accused of poaching SP Setia's management and absorb them into Focal Aims Sdn Bhd, which was later renamed to Eco World.
*important to recall that the same had happened when UEM merged with Sunrise. Important because there seems to be a pattern here
