YNH struggles with RM2.1b Foster tower

YNH Property Bhd is delaying the sale of part of a RM2.1 billion (US$600 million) tower being designed by Norman Foster as the global credit crisis threatens the Malaysian capital’s biggest commercial property transaction.

The company may scrap plans to raise as much as RM1.2 billion by selling half of the project and is in talks with funds from Singapore, Hong Kong and Japan on a venture to help complete development of the tower, said Daniel Chan, head of corporate services at the Ipoh, Malaysia-based company.

“People are more cautious and want lower pricing,” Chan said in an interview yesterday. “This global problem will definitely affect Malaysia. It would be foolish to say we will be shielded.”

YNH stumbled in attempting to carry out Kuala Lumpur’s biggest commercial transaction as the global credit crisis threatened to tip the world into recession. Malaysia’s government said October 20 it expects slower-than-expected growth next year as the US and Chinese economies cool.

The company is delaying completion of the RM920 million sale of the first half of the 45-story office development to Kuwait Finance House (Malaysia) Bhd, agreed to in January, because of design changes, Chan said.

London-based architecture firm Foster & Partners, which designed the Beijing Capital International Airport’s newest terminal and “The Gherkin” skyscraper in London, was appointed in March to design the Kuala Lumpur tower.

Supply Glut Looms

Malaysian real estate prices may stall as the supply of office space will increase from 2010, said Mervin Chow, an analyst at OSK Research Sdn Bhd.

“A lot of supply will hit the market in Kuala Lumpur, so I’m not to sure whether they can demand a good price by that time,” he said. “Supply is going to come in by the end of this year and the momentum is going to peak by 2011. The dynamics of supply and demand by that time is not going to be favorable for developers.”

There will be an additional 24.8 million square feet (2.3 million square meters) of office space after 2010, compared with existing capacity of 56.8 million square feet, Chow said.

Malaysia Slowing

Malaysia will cut its 2009 economic-growth forecast on November 4, from the current estimate of 5.4 per cent, Finance Minister Datuk Najib Razak said on October 20.

The developer is negotiating with funds that may take a 20 per cent stake in a venture to develop the tower. Investing in a venture will allow the funds to receive earnings from rents while they wait for property markets to recover. They may then sell the building to a real estate investment trust, Chan said.

They “will have the ability to sell the second block to a REIT, that’s what they have proposed to us,” he said. “It’s still in early stages of discussions.”

YNH in January agreed to sell the first half of the development to Kuwait Finance.

The sale will be completed by year-end, later than planned, so the buyers can “make sure everything is right,” Chan said.

The Grade A tower in Malaysia will have a retail podium and two office wings with total lettable space of 1.2 million square feet (111,000 square meters).

Shares of YNH have fallen 54 per cent this year, outpacing the 37 per cent slide in the benchmark Composite Index.

YNH plans to increase 2009 profit by 20 per cent to as much as RM120 million next year, based on RM300 million of sales.

“We are very cautious, we now like to be more conservative in what we are doing,” Chan said. “If we are able to achieve our targets, it will be a bonus for us.”

By Bloomberg