IWCITY: A Bridge Too Far

In December 2015, TRX City Sdn Bhd (TRX City) announced that it had entered into the share sale agreement with IWH CREC Sdn Bhd (IWH CREC) for the latter to take a 60%-stake in the 485-acre Bandar Malaysia project. IWH CREC is a 60:40 JV company owned by Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd (CREC).

In March this year, IWH announced a proposed merger of with its listed associate Iskandar Waterfront City Bhd (IWCity). This will effectively give the new IWH/IWCity a 36%-stake in the Bandar Malaysia project.

In addition to its stake in TRX City, the new IWH/IWCity will also own up to 7,400 acres of land fronting the sea between Johor Baru and Singapore. IWH currently owns 1,072 acres mainly located in Tebrau, Johor as well as 3,900 acres of waterfront land, of which 80% has been reclaimed.

TRX City announced 3 hours ago that that the Bandar Malaysia development agreement with IWH CREC has lapsed due to failure to meet the payment obligations outlined in the Conditions Precedent under the SSA. For more, go here.

Interestingly, IWH CREC has disputed claims by TRX City about 1 hour ago (here). It stated categorically: “IWH CREC is concerned with the content of the termination notice and the subsequent press release issued by TRX City, which, given the factual matrix, does not fully and accurately reflect the circumstances and conduct of the parties in this matter.” (Or, in plain English, you are not telling the truth!) I wonder whether there is a political angle to this break up. Maybe, too much drum-banging by this guy?

Happily Ever After It Was Not...

Without the Bandar Malaysia project, the IWH/IWCity merger could still go thru. However, the centerpiece of the merger is of course the stake in Bandar Malaysia. The potential collapse of the Bandar Malaysia deal would reduce IWH/IWCity to be just another Johor property stock. With that, I believe we could see a sharp correction in IWCity share price tomorrow. As the strong support is at RM1.75 - a long way down from its high perch above RM3.00 - I advise caution if you want to trade on this stock.  

Chart: IWCity's monthly chart as at May 3, 2017 (Source: Malaysiastock.biz)