IOI Corporation – Menara Citibank no go…
• Terminating purchase of Menara Citibank
IOI Corp announced yesterday that they are terminating their purchase to buy Menara Citibank which was negotiated for the sum of RM586.7m. The Group cited reasons for the move as a reaction to “sudden adverse developments in the global economic environment which have spread to this region and impacted negatively on business sentiments”. As a penalty, the Group will have to forfeit some RM73m paid earlier including interest accrued to the vendor and is seeking legal advice on the matter.
• More to this move?
We find the move to terminate the purchase of the building and for such stated reasons a bit startling and consider several reasons for the move. Firstly, it could be a more towards conservatism by the company given that they might want to keep more cash in their coffers at this point of time to perhaps redeem more of their convertible bonds or pursue share buybacks. Also, the forex losses might have spurred things along as some losses are still expected in the coming quarter. Beside this, it could also be that with the change in economic landscape the Group finds the building price unjustified. That said, it could suggest that there could be some renegotiations on the transaction in the future although we do not doubt that Menara Citibank has many suitors.
• Minimal dent to earnings in any case
Should the group have to bear the RM73m forfeit, it would only take off 3% from FY09 numbers. Also we do not see much dent to our earnings forecast as we have estimated only flattish growth in the property investment segment with the expectation that rental yields could come off in the very near future.
• Maintain Buy, TP: RM4.00
We expect that IOI will continue to see some volatility in the near term but our longer term outlook is maintained that share price should recover especially when CPO prices do as production numbers should be seen coming off in a month or two.
Entry filed under: Business, Finance, Stock Market. Tags: business sentiments, conservatism, convertible bonds, economic landscape, global economic environment, IOI Corporation, legal advice, Menara Citibank, property investment segment, purchase.