Emqore has filed a complaint against IHH and 47 other defendants, as Emqore claims that it has suffered losses, alleging the defendants to have conspired to frustrate a proposed share acquisition transaction between Fortis and its supposed predecessors. The claims against IHH essentially arise from allegations in relation to the issuance of Fortis shares to IHH in 2018. However, we believe that IHH has strong grounds to dismiss the claims, as we understand that IHH has no knowledge of the proposed share acquisition, at the time of the transaction. Pursuant to the complaint, Emqore is seeking USD6.5bn in damages from the defendants and we note that IHH also intends to file for a Motion to Dismiss against Emqore’s complaint. We make no changes to our forecasts at this juncture, as it is difficult to determine the potential liability that would arise from this lawsuit (if at all), considering that it involves 48 different defendants. We maintain our BUY call on IHH, with an unchanged TP of RM7.51.

NEWSBREAK

Emqore Envesecure Private Capital Trust (Emqore) has filed a complaint against IHH and 47 other defendants at the US District Court. Emqore alleges that it has purportedly suffered losses as the defendants had allegedly conspired to frustrate a proposed share acquisition transaction between both Fortis and Emqore’s supposed predecessors. Pursuant to the complaint, Emqore is seeking for USD6.5bn in damages from the 28 named defendants and 20 non-party defendants. IHH intends to file for a Motion to Dismiss on Emqore’s complaint on three grounds, namely (i) lack of personal jurisdiction, (ii) forum non conveniens, and (iii) failure to state a claim.

HLIB’s VIEW

We note that the claim Emqore has against IHH essentially arises from the allegations in relation to the issuance of Fortis shares to IHH in 2018. However, we highlight that, at the time of the transaction, the Singh brothers were no longer the owners nor directors of Fortis. Not to mention that the Fortis shares were also issued to IHH based on a preferential allotment basis, instead of purchasing from the Singh brothers, hence we believe that the Singh brothers were not involved in the transaction in any way. Given the reasons mentioned above, we believe that IHH would have strong grounds to dismiss the claims, as we understand that IHH also had no knowledge of the proposed share acquisition arrangement between Emqore and the Singh brothers at the time of transaction.

Forecast. We keep our forecasts unchanged at this juncture, as it is difficult to determine the potential liability to IHH arising from this lawsuit, given that the lawsuit involves 28 named defendants and 20 non-party defendants. Assuming the RM6.5bn damages are split equally among 48 defendants, the potential impact to IHH’s FY22f earnings would be c.RM135m. In any case, in the unlikely event the defendants lose the case, the liability proportion attributable to IHH would be treated as an exceptional item due to its one-off nature.

Maintain BUY, TP: RM7.51. We keep our BUY recommendation on IHH despite the lawsuit, as we expect IHH to continue benefitting from the progressive recovery of patient volumes. TP is kept unchanged at RM7.51.

Source: Hong Leong Investment Bank Research - 6 Jan 2022