IJM's strategy for India

  • Business
  • Thursday, 07 Oct 2010

PETALING JAYA: IJM Corp Bhd’s move to increase stakes in two India-based companies for RM93.4mil is part of its strategy of increasing investments in infrastructure assets in high-growth emerging markets, says chief executive officer and managing director Datuk Krishnan Tan (pic).

He said IJM had been expanding its portfolio of such assets, particularly in India where IJM currently had five toll road concessions, including a minority stake in Swarna Tollway, which was its first toll road investment in that country.

“Given the intention of the other shareholders to dispose of their investments and our familiarity with the assets as well as intention to increase such investments, it was a mutually beneficial opportunity,” he told StarBiz yesterday.

Besides tollways in India, he said IJM had a 20% interest in a 468-megawatt (MW) gas-fired power plant in Andra Pradesh, which had recently committed to expanding capacity by a further 780MW.

“Our group also continues to be involved in the construction sector, real estate development, and the manufacture and supply of ready mixed concrete and steel wire mesh in India,” he added.

IJM announced on Tuesday that it had signed agreements with WCT (Overseas) Sdn Bhd and MTD Capital Bhd to acquire their shares in CIDB Inventures Sdn Bhd (CIDBI) for RM27.41mil.

It also said that IJMII (Mauritius) Ltd had signed agreements with WCT (Offshore) Pte Ltd and International MTDCap (Mauritius) Ltd to acquire their shares in Swarna Tollway Pte Ltd (STPL) for RM66mil.

IJMII is a wholly-owned subsidiary of IJM Investments (M) Ltd, which in turn is a wholly-owned unit of IJM.

STPL is the concessionaire company implementing the Swarna Tollway project. With the acquisition, IJM’s effective interest in CIDBI and STPL will increase to 78.14% and 76.44% respectively.

An analyst from a local brokerage said the acquired assets were small and not a “big deal” for IJM. However, he said it was possible for IJM to bundle these assets with other assets to form an initial public offering although it was unlikely to happen soon.

“It (IJM) always had the intention to list its Indian assets but has put it on hold for some reasons,” he told StarBiz yesterday.

ECMLibra Investment Research did not expect these acquisitions to have significant impact, pointing out that CIDBI reported a net loss of RM0.9mil in the financial year ended Dec 31, 2009 while STPL incurred a net loss of RM6.5mil in the financial year ended March 31.

“We understand from management that despite recent accounting losses, the highway concession’s operation is expected to improve over time and the (stake) acquisitions represent an opportunity to consolidate IJM’s existing highway concession interests in India,” it said.

RHB Research Institute said the increased losses IJM would incur from higher stakes in the two units would be immaterial.

“The purchase consideration will increase IJM’s net debt of RM2.55bil and gearing of 0.52 time as at June 30 to RM2.64bil and 0.53 time respectively, which is still manageable,” it said.

It believed the acquisitions were for tactical reasons, adding that a stronger control over the assets would give IJM the flexibility when it came to merger and acquisition exercises.

Maybank Investment Bank Bhd said the acquisition was not surprising as both WCT and MTD were interested in crystalising their investments. It added that Swarna Tollway was profitable but there were no financial details available for assessment.

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