Every company listed on the Bursa Malaysia has nearly identical objective that is to maximize company’s profit and to maximize shareholders’ wealth. To achieve this, the company must have sound financial planning; good financial decision, and improve profitability which will then increase the value of the firm. In order to obtain success, the company must have a well plan and execution of its capital structure.
What is capital structure? Capital structure describes the specific mixture of long-term debt and equity the firm uses to finance its operation and growth. The risk and value of the firm will be affected by this mixture. Hence, it is often a challenging task for the finance managers to determine the optimal capital structure. An error free decision is critical to avoid an incorrect financing decision (Eriotis, Vasilou & Neokosmidi, 2007) and different levels of debt and equity used in capital structure suggest that managers may employ firm-specific strategies for improved performance (Gleason, Mathur, & Mathur, 2000).
For this study, we will analyze 2 out of 85 property companies’ (which are listed on Bursa Malaysia) capital structure for the year 2010 and 2011. These two companies are IGB (Ipoh Garden Berhad) and Encorp Berhad.
A. IGB (Ipoh Garden Berhad)
IGB Corporation Berhad was incorporated on 12 November 1964 and listed in the main market of Bursa Malaysia on 9 October 1981. At the helm of the company is Tan Sri Abu Talib Othman (non-executive Chairman of the Board) and Chung Meng Tan (Group Managing Director and Executive Director). It business address is Level 32, The Gardens South Tower, Penthouse, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur 59200. IGB involves in real estates activities such as property development, property investment and management, hotel operations, construction and investment holdings. IGB also invested in and managed a diverse portfolio of long term commercial, retail, residential and hospitality assets in Asia, Australia, the United States and Europe.
(i) IGB’s business activities and development are summarized and presented in the table below (information extracted from Annual Report 2010/2011):
Economic Activity Achievement in 2010 Achievement in 2011
Property development 1. Work-in-progress/completed:
• Seri Ampang Hilir – 82% sold, target delivery in 2012.
• One Jelatek Condominium – completed
• Hampshire Place Residences – completed
• Kundang development - 87% sold. Delivery expected in early 2012. 1. Construction work begin for G Residence (November 2011)
2. Commencing substructure work for a 166 unit commercial apartment along Jalan Tun Razak.
Property Investment and Management – Retail 1. The Garden Mall – has occupancy rate of 98%.
2. Mid Valley Mega Mall has 99.86% occupancy 1. The Garden Mall – full occupancy rate
2. Mid Valley Mega Mall – 195 tenancies renewed and 37 new tenants joined the set-up.
Hotel 1. The 242-suite MiCasa All-Suite...