UEM Sunrise-Eco World merger a strategic fit to develop Iskandar?

THE shareholders of UEM Sunrise Bhd and Eco World Development Group Bhd will have to decide when the two companies convene their respective extraordinary general meeting (EGM), whether they should merge to become a new entity.

Before the EGM, the board of the two companies will be advised by their investment bankers whether the merger is a good or bad proposal.

Currently both UEM Sunrise and Eco World are not doing well because the property market is not good.

It has been weak for the last few years.

Both companies’ shares on the stock market are bad.

But UEM Sunrise is a financially stronger company bcos its main sharejolder is UEM Group Bhd, a 100 per cent subsidiary of Khazanah Nasional Bhd.

On the othe hand , Eco World has stronger management experience in property development.

Eco World debt ratio is higher than UEM Sunrise, making it financially a weaker company .

I guess while UEM Group will have the controlling share in the merged entity, the management will be run by Eco World executives because they have been longer in the property market .

They should be more experienced than UEM Sunrise.

For UEM Group/Khazanah, their main focus in property dvelopment is Iskandar Regional Development, the new growth pole in southern Johor.

UEM Sunrise owns most of the land in Iskandar. If it can develop the region into a new vibrant industrial, commercial and services centre , the land values will go up .

I would think UEM Group and Khazanah are looking at the merger between UM Sunrise and Eco World as a strategic fit to develop Iskandar.

Eco World also has a large land bank in Iskandar.

Therefore both UEM Sunrise and Eco World have a common interest in developing their land assets in Iskandar.

It should be noted the second highway link to Singapore was developed by UEM Sunrise to serve as a catalyst for Iskandar regional development. Nearby is Tanjung Pelepas port .

The objective of Iskandar is to attract Singapore and international investors to relocate in southern Johor.

As Iskandar grows, there will be spillover effects into the hinterland including east coast Johor and spreading northward into Muar and Melaka.

The shareholders of both UEM Sunrise and Eco World will have to decide whether all this strategic growth objective will make the share price go up.

Lets see how they decide.

* The writer is former Economic Planning Unit director-general, Finance Ministry secretary-general, and founding managing director of Khazanah Nasional Bhd.

Source: NST