June 15, 2007

Property developer's second try to approve director fees

Hwa Hong's move comes after failing to get resolution passed at April meeting

By Goh Eng Yeow

TOP DRAW: The firm's biggest attraction is the strong cash flow from progressive payments on the 545-unit RiverGate condominium project. -- Photo: CapitaLand

A LONG-SIMMERING dispute among Hwa Hong Corporation shareholders is threatening to flare up again.

If the festering row escalates, it could leave the property and insurance firm vulnerable to a takeover - a tempting prospect given the hot real estate market.

The saga began at the April annual general meeting (AGM), when a group of disgruntled investors shot down a proposal to pay $370,000 in fees to non-executive directors for last year.

Long-time independent directors Boon Suan Lee and Chew Loy Kiat were also ousted after failing to muster enough votes for re-election.

Hwa Hong is now raising the fee issue again. It told shareholders in a circular this week that it is re-tabling a resolution to pay $370,000 to its seven non-executive directors at an extraordinary general meeting on June 28.

The proposed payment exceeds the $311,000 paid to six non-executive directors for the 2005 financial year.

But observers note that Hwa Hong's latest attempt is still fraught with uncertainty given its fractured shareholding structure.

While the identities of the disgruntled shareholders who opposed the directors' fees and caused the removal of the two directors have not been disclosed, observers noted that they had turned up for the April AGM well-prepared.

Before the AGM, they had sent company chairman Hans Miller a letter demanding that the votes on the fees resolution and the election of the two directors be formally counted and recorded, as opposed to being done with just a show of hands.

The April count revealed that about 54 per cent of the votes, representing about 264 million shares, were cast against the three resolutions. The remaining 46 per cent, which were cast in favour of the resolutions, represented about 221 million shares.

The shareholding structure as outlined in Hwa Hong's latest annual report indicates that at least one substantial investor will have to switch votes from the April AGM in order for the proposal to pass this time.

The biggest shareholder is group managing director Ong Choo Eng and other members of the Ong family. They together own about 201 million shares, or about 30.82 per cent, mostly through the investment vehicle Ong Holdings.

They are followed by Hong Leong Group, whose companies collectively hold 23 per cent or 150.3 million shares.

Two individuals also own key stakes: Mr Steven Ong Kay Eng has a 6.44 per cent holding, or 42.1 million shares, while Mr Ong Hoo Eng holds 7.19 per cent, or 47 million shares.

At the April AGM, Mr Steven Ong asked if there had been a conflict of interest with Mr Boon, an independent director, 'rendering services to Hwa Hong'.

Mr Steven Ong had originally been a shareholder of Ong Holdings and had received his Hwa Hong stake as part of a 2003 out-of-court settlement to resolve a long-running family feud.

Mr Boon is a certified public accountant and the managing partner of Boon Suan Lee & Co. He had been a Hwa Hong director from 1998 until his removal in April.

Mr Chew, the other ousted director, is a chartered insurer who joined Hwa Hong's board in 1989.

Given the booming property market, the developments unfolding at Hwa Hong will be closely watched because its fragmented shareholding setup makes it a possible takeover target.

The firm's biggest attraction is the strong cash flow from progressive payments on the luxurious 545-unit RiverGate condominium project.

Mr Miller revealed in Hwa Hong's annual report that the firm had bought its 50 per cent interest in the condominium - site of the former TradeMart - for only $50 million in 1984.

CIMB-GK estimated last November that Hwa Hong could book a $200 million profit from the project, but observers believe that this figure may be on the low side.

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