K. Euro deal likely
05/06/2007 The Star By C.S. TAN

PETALING JAYA: There is a “reasonably good chance” IJM Corp Bhd would buy a 25% stake in Kumpulan Europlus Bhd (K. Euro), managing director Datuk Krishnan Tan said. K. Euro would be acquired under a share purchase agreement signed two years ago.

IJM announced last week it had agreed to a “last extension” of one month till the end of this month on the agreement with the vendors of K. Euro.

The company had made it clear it was earlier awaiting the finalisation of a concession agreement of the proposed RM3bil West Coast Expressway (WCE) before it would make a decision.

K. Euro, together with consortium members, signed the concession agreement with the Government for the WCE recently.

“That was the last milestone. All milestones have now been reached. We want to make a final, comprehensive review of the whole exercise because it would involve a major commitment by IJM,” Krishnan told StarBiz yesterday.

Under the concession agreement, the WCE would be built and tolled by a consortium for 33 years before the highway is transferred to the Government. The consortium's shareholders are K. Euro (60%), Kumpulan Darul Ehsan Bhd (20%) and Perak Corp Bhd (20%).

IJM would have access to the RM3bil construction works if it decides to gain control of K. Euro. As to the extent of K. Euro's and IJM's participation in that construction, Krishnan said that was one of the details being looked into.

The proposed takeover of K. Euro has been a long awaited one. IJM signed a share purchase agreement with several parties, including K. Euro CEO Tan Sri Chan Ah Chye in May 2005 to buy a 25% stake in K. Euro for RM33.1mil cash, or 28 sen a share. On hindsight, that's a good price. K. Euro closed at 78.5 sen a share yesterday.

“We are happy the company has finally concluded the concession agreement (for WCE). The overall framework of the concession looks alright, but we want to look at some of the details,” Krishnan said.

He pointed out that the proposed purchase of a major stake in K. Euro did not hinge on the WCE alone. There is a total package of assets such as the Canal City project in Shah Alam, which has a gross development value of RM6.5bil, a 50:50 joint venture between IJM and K. Euro.

In addition, K. Euro has a 42.9% stake in property developer Talam Corp Bhd.

“We want a final look at all aspects before we formalise the agreement. We've one month to sort that out,” Krishnan said.

A takeover of K. Euro is quite straightforward, said a fund manager who declined to be named. The company has borrowings of less than RM200mil and has ownership in very large projects like WCE and Canal City.

Talam, however, has borrowings of over RM1.3bil. An attempt is being made to address that. The company announced in April a proposed debt settlement scheme to restructure about RM830mil of those borrowings.

The scheme envisages extensive participation by IJM as joint developer and main contractor in many of Talam's projects. That would help Talam as IJM, although better known as a blue chip regional contractor, is also well regarded as a developer of high quality properties.

IJM would not have to consolidate Talam's huge borrowings into its balance sheet as Talam would be an indirect associate company and not a subsidiary. However, Krishnan pointed out that IJM would have to equity account for Talam's profits or losses.

There is some light at the end of the tunnel for Talam. In April, it announced the sale of a hospital property for RM63.5mil, and 25 acres in Bukit Beruntung, Selangor, to Tesco Stores (M) Sdn Bhd for RM18.6mil.