Companies get listed in stock exchanges to get funding from the public or investors. However, after the business has stabilised and earning good profits, many companies come to a realisation that perhaps listing may not the best option anymore, once they have reached a certain size and especially if they have quite a lot of cash. In other words, why still maintain the listing and thus have to comply with many BURSA requirements when as a private entity you answer to no one but the parent company or the owner? The decision making would also be much faster and there is the added advantage that one day when you feel your value has increased substantially, a relisting may yield an even higher valuation for the parent company. Reported in an English daily recently, IJM Land is going towards this privatisation route.
In fact the plans have been outlined for it to increase its recurring income so that during slow times, it can slow down its development without having no income. In other words, better flexibility. During slower times, development can thus be slowed down accordingly. There is really little incentive to build if the demand is weak and contribute to a squeezed margin and definitely a higher risk too. It’s parent company, IJM Corp CEO and MD Datuk Teh Kean Ming said that for now, IJM Land is not looking to establish a real estate According to IJM Land CEO and MD Datuk Soam Heng Choon, IJM Land still has 4,900 acres of undeveloped land with a gross development value of RM30 billion.
I think I have read many of these ‘recurring income’ theme amongst developers these days. Some examples include Tropicana, Hunza, Tambun Indah and Ken Holdings. This is no different from an individual investor who has gained quite a lot from his property investments for the past many years and is now buying secondary properties for rental basis so that it’s not so volatile and yet still have the potential for future capital appreciations. For all these listed developers, I think this is a good trend. It enables the owner to reap the maximum possible profits without the need to share them in the future with huge number of shareholders. IJM also announced that it is looking to launch another RM1 billion worth of new properties before the end of its financial year ending March 31 2015.
written on 14 Jan 2015
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