SP Setia in leadership crisis

By Khairie Hisyam

After a second CEO resignation within nine months, property developer SP Setia has yet to have a permanent replacement for long-time boss Liew Kee Sin, who left in April this year. Why is major shareholder PNB taking its time over such a crucial position for SP Setia?

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Next January, property developer SP Setia Bhd will welcome its third chief executive officer in just over eight months. But a permanent replacement for long-time chief Liew Kee Sin, who took a bow last April after nearly 18 years with the company, is still nowhere in sight.

Current acting president and CEO Voon Tin Yow, who had been Liew’s right-hand man at SP Setia since the very beginning, is leaving in December, earlier than when his one-year appointment expires in April next year. Stepping up would be current acting deputy president and chief operating officer Khor Chap Jen, though he would also assume the top post on an acting basis beginning January.

Voon’s departure as well as the lack of a permanent replacement is alarming, say analysts. “Surprisingly, the group has not appointed a permanent CEO till now which is disappointing,” said Public Bank in a research note last week.

The uncertainty appears to stem from major shareholder Permodalan Nasional Berhad (PNB), a government-linked Bumiputera fund management company. With nearly 64% of SP Setia shares, any CEO appointment would have to come from PNB.

However, PNB has strangely dawdled over the issue despite having had years to find an appropriate — and more importantly, permanent — replacement for Liew.

PNB had not responded to KiniBiz queries on the subject at press time. SP Setia declined to comment.

A strange takeover

The apparent instability in SP Setia’s senior management at present can be traced back to PNB’s hostile takeover bid of the company three years ago. In the aftermath of the takeover, Liew was set for an exit as PNB gained control of the SP Setia brand.

In September 2011, PNB launched a general offer of RM3.90 per SP Setia share after crossing the 33% shareholding threshold. However, the SP Setia board at the time balked at the offer, claiming that the offer “fundamentally undervalues” the developer.

News stories at the time reported that the company’s board see the company’s real value to be closer to RM4.20 per share.

Then in January 2012 PNB upped its offer to RM3.95 per share in concert with Liew, which translated into some RM6 billion in total. This raised PNB’s stake in SP Setia to just shy of 70%, held through its funds Yayasan Pelaburan Bumiputra and Skim Amanah Saham Bumiputera.

A pertinent point is that as part of the takeover PNB struck a deal with long-time CEO Liew whereby the latter would remain at the helm for three years following the latter — Liew left after two years.

“If I leave early, it lapses,” Liew was previously quoted as saying.

However, the decision to gain more control than the roughly 30% shareholding it had at the time in such a manner raised question marks among the industry, as PNB was already benefitting from SP Setia’s prominence being a major shareholder. Among others the questions revolve around whether such a move was necessary and whether it unnecessarily alienated Liew.

Market talk has it that even within PNB itself there were some who thought there was a better way of assuming greater control than the general offer approach, which faced resistance from Liew’s team and subsequently his exit along with key lieutenants.

“You would have to ask Hamad Kama (PNB CEO) on the reasoning (for the exercise),” said a corporate observer to KiniBiz.

Following KiniBiz queries over the issue, PNB CEO Hamad Kama Piah’s office informed KiniBiz that Hamad is currently outstation. KiniBiz phone calls to his mobile went unanswered.

Happy marriage gone sour

An important context is that PNB, among the largest investors in the market with about RM300 billion in net asset value, had played a role in SP Setia’s ascendance over the years as a major shareholder.

“PNB can make things happen,” opined a property industry observer to KiniBiz, asking anonymity. “Liew and Voon were the driving force but PNB contributed.”

By all accounts it seemed like a happy marriage for SP Setia with Liew and his team providing the entrepreneurial drive to charge forward while PNB, in the backseat, was perceived to have eased the opening of doors when necessary.

That is until the strange hostile takeover was launched, resulting in Liew’s eventual exit followed by Voon’s coming departure in December. This marks the end of an era in a way as, while SP Setia was not technically founded by Liew and Voon, both were seen as the ones who built up the brand.

Colleagues and accordingly regular lunch mates in a property development company in 1990, Liew and Voon — then 32 and 33 years old respectively — pooled their resources and struck out on their own with the acquisition of Syarikat Kemajuan Jerai Sdn Bhd, which owned 225 acres in Ampang. Six years later the company was acquired by SP Setia on a share swap basis and both men became directors of SP Setia.

It was then that they invited banker Teow Leong Seng, who helped finance their 1990 acquisition, to join them, eventually staying as a long-time chief financial officer until he tendered his resignation notice at the same time as Liew did in January this year. The rest is history.

“Liew and Voon built the company and were basically kicked out (following the takeover),” said a property market watcher. “Of course they would be bitter about it — SP Setia was their baby.”

However a counterpoint to this view is that Liew and Voon were never forced to leave in the first place: they could have chosen to stay despite PNB’s increased stake.

Indeed Liew was given an option, following the takeover, to sell his remaining stake of about 11% to PNB in several tranches at RM3.95 per share — an option no other shareholder were given. Prior to his exit in end-April, Liew sold his last block of 67.79 million shares on April 23, which translated into RM267.7 million in gains. On that day SP Setia shares were trading below RM3.00 on the stock exchange.

In addition Liew also remained chairman of the Battersea Project Holding Company Limited and also managing director of Qinzhou Development (Malaysia) Consortium Sdn Bhd until September next year after his resignation which was requested by SP Setia chairman Zaki Azmi in the interest of continuity. Liew remained chairman of the Battersea project despite surfacing in rival developer Eco World Development Group less than a week after his last day at SP Setia.

These events suggest that PNB had accommodated Liew somewhat following the takeover. However talk in some property circles is that there was simply bitterness over how the takeover was launched, taking Liew and company by surprise.

Liew himself had waved away questions on whether his relationship with PNB suffered following the takeover, though his comments hinted that there might have been some bitterness about it. Speaking in a radio interview last week, Liew noted that both himself and Voon, being together for 22 years, built “an empire”.

In an interview last year, Liew said things are cordial and quiet between both of them, saying the takeover chapter is closed now that the succession plan for his departure had been announced by the time of the interview.

“So I don’t want to talk about it anymore,” Liew was quoted as saying. “It’s over already.”

More recently Liew reiterated his position that the issue had been put to rest. In an interview with business radio BFM last week, Liew responded to a question asking whether he would work with his former partners again by saying life is about looking forward.

“If you keep going back and delve into issues that are in the past, you’re not going to go far,” said Liew in the interview.

When asked whether it hurt walking away SP Setia, Liew was vague. “You should have attended our farewell dinner about six months ago,” said Liew in the interview. “That would have been an experience which I did not expect from my people and myself.”

Liew did not respond to KiniBiz messages and phone calls to his mobile were unanswered.

Succession plan out the window?

However SP Setia’s succession arrangements for life after Liew had not exactly gone according to the plan that was approved by the board in March 2013,

The succession plan would have had then-COO and deputy president Voon stepped up to become CEO and president after Liew leaves these positions, while then-CFO Teow would shift up to take over Voon’s positions at the time.

However when Liew finally tendered his long-anticipated resignation notice in January this year, Teow also tendered his own resignation. Liew’s last day was April 30 while Teow’s final day was July 31.

In a filing to the stock exchange, Teow’s departure was attributed to a desire to pursue his personal goals.

Strangely, Voon was only named as an acting president and CEO for a one-year period between May 1, 2014 and April 30, 2015 while then-group executive vice president Khor was named acting deputy president for the same period.

While this seems a departure from the succession plan, SP Setia claimed otherwise.

“The appointments of Voon and Khor as acting president and CEO and acting deputy president are consistent with the management succession plan approved by the Board of Directors of S P Setia Berhad in March 2013,” said SP Setia.

Industry sources KiniBiz spoke to claim that the succession plan never intended for Voon to be a permanent replacement for Liew in any case.

However with Voon’s resignation well ahead of the appointment period’s end, it would seem that the succession plan is now approaching the next phase: a new, permanent, CEO.

While PNB had not named anyone yet, last October talk surfaced of Jamaludin Osman, who currently heads I&P Group Berhad, being among the candidates PNB was looking at to take SP Setia’s top post.

I&P Group is a non-listed property developer which PNB formed by privatising three listed developers between 2005 and 2007 for a total of RM1.34 billion.

However Jamaludin denied any knowledge of the matter, responding to a previous KiniBiz query by saying that he is “only an employee”. When contacted by KiniBiz at the time, SP Setia chairman Zaki Azmi also denied any knowledge.

“Sorry, I have not heard about it except from (the news reports),” said Zaki to KiniBiz in October last year.

More recently, some in the property circles do not think it is likely that Jamaludin would take over through a merger between SP Setia and I&P Group.

“Jamaluddin is not likely to take over,” opined a market watcher to KiniBiz, asking not to be named. “Likely no merger with I&P (involving SP Setia) too because they are two separate companies with different branding.”

Zaki did not answer KiniBiz phone calls to his mobile number.

What is PNB’s gameplan?

After having spent RM6 billion to gain control of arguably Malaysia’s foremost property development brand at the time, PNB’s delay in naming a permanent CEO to take control of SP Setia raises concerns.

Since no one had been named as a permanent CEO thus far, the indication appears to be that PNB had not found the candidate who ticks all the boxes yet despite having had two years to look for one.

The company itself seems in a fine position with good earnings visibility and well-located land banks — overall strong fundamentals. However the lack of a permanent replacement for Liew meant SP Setia has not had a clear direction in terms of strategy, nor has it had managerial stability.

For one, analysts feel this would continue depressing its share price if not worsen it.

“We believe until there is a clear direction of the company’s strategy and stability of key management at the top, the discount given on the stock might persist, if not widen despite the good fundamentals,” said a Public Bank research note last week.

PNB has spent some RM6 billion increasing its ownership in SP Setia to 64% from some 30%. But strangely it is lacking any kind of strategy after that but continues to allow a bleeding of staff, much of its to its new competitor in which Liew is playing a major role — Eco World. Why? And for how long will it let this situation continue?

Tomorrow: The cost of PNB’s dawdling