Frankly Speaking: IOIPG navigates a sticky conflict position
The board of IOI Properties Group Bhd (KL:IOIPG) must be commended for rejecting an offer to acquire Shenton 101 Pte Ltd, which owns the Shenton House redevelopment project in Singapore, from its major shareholder, Lee Yeow Seng.
The board declined the offer as the venture would add to IOIPG’s capital commitments. According to a research report, the company’s gearing would have risen to 0.92 times by the end of this year compared with the industry average of 0.4 times had the offer been accepted.
Instead of taking over the project from Lee, IOIPG has entered into a project management agreement and will receive a fee of 6%. The management contract is to mitigate any potential conflict situation that may arise because of Lee’s position as group CEO of IOIPG.
IOIPG has several ongoing development projects in Singapore and Shenton House is a potential competitor.
Related-party transactions (RPTs) involving listed companies are usually frowned upon, which is why such proposals go to the board and shareholders for approval. In most instances, the RPTs are approved, however controversial they may be.
In the case of IOIPG, the board has not accepted the offer and instead has opted for a management agreement for the project. Under the circumstances, it is probably the best decision for IOIPG because the agreement also gives it room to purchase the Shenton House project in the future.
According to the company, IOIPG has the first right of refusal during the development period of Shenton House to purchase or go into a joint venture with Lee should there be any corporate exercise involving the development. The development of Shenton House is scheduled to commence in the first quarter of 2027 and be completed by the first quarter of 2031.
By then, IOIPG should have completed most of its existing projects in Singapore and may be in a better position to explore the possibility of acquiring the Shenton House development.