Spotlight on IDR draws interest in UEM Land

An aerial view of the Johor Administration Centre in Nusajaya.

EARLIER in the week, UEM Group Bhd took the spotlight when news of a lawsuit to the tune of RM840mil by the Qatar government over a dispute regarding a highway project in Qatar came to light.

It appears that UEM Group received a set of legal documents from the state of Qatar on April 27.

The plaintiff, which is Qatar, claimed that the defendants – Parsons International Ltd, UEM Group and Qatar Insurance Co – failed to fulfil contractual obligations in relation to the construction of the Salwa Road in Doha.

They are being sued for 876.32 million riyal (about RM840.98mil).

Sources said Datuk Izzaddin Idris, the newly-appointed managing director and chief executive offcer of UEM Group (effective July 1), was told of the ongoing issue when he was hired, and as such, was “made aware” of the situation.

Izzaddin will be succeeding Datuk Ahmad Pardas Senin, who is retiring, on July 1.

Industry observers believe that Izzaddin has been tasked to troubleshoot certain issues plaguing the group currently.

UEM Land Bhd’s group chairman Tan Sri Ahmad Tajuddin Ali had told reporters after its annual general meeting, that UEM Group would be able to manage the lawsuit.

Afterall, it was merely the contractor for the project, and the second defendant in the lawsuit.

However, as far as UEM Land is concerned, there is no real impact.

Meanwhile, interest in UEM Land has intensified in recent weeks.

Greater bilateral ties with Singapore, and the possibility of a third bridge from Changi to the eastern part of Johor have all but brought the spotlight back to the Iskandar Development Region (IDR) over the last two months.

Naturally, the key beneficiary would be the largest landowner and master developer of Iskandar Malaysia – UEM Land.

It owns 40% or 9,564 acres of the entire land in IDR.

The appeal behind the UEM Land growth story has always been on its appreciating land prices, favourable domestic policies as well as Khazanah Nasional Bhd’s presence to mitigate execution risk.

As it is, land value in Nusajaya have already risen from an average of RM5 to RM8 per square feet (psf) to RM12psf since Iskandar Malaysia was launched in 2006.

Every 10% increase in current land prices raises UEM Land’s revised net asset value by 11%.

There are huge potential revaluation gains for UEM Land from its low land carrying cost of RM4.40psf.

To date, the IDR has attracted RM42bil of development pledges; with actual cumulative investments reaching RM12.9bil.

It has sold approximately 2,476 acres of undeveloped land parcels in Nusajaya to developers, investors and strategic partners.

This is key for initiating a population base for Nusajaya and accelerating the overall pace of its development.

Some of the prominent development projects include Acerinox’s RM5bil steel manufacturing plant, the Johor Administration Centre and the RM650mil Legoland.

“With the Johor Administration Centre launched in April, the development concept of Nusajaya becomes a reality.

We should see increased business activity and a growth in population moving forward,” says a fund manager.

Certainly, while no major developments are expected to be completed in 2010, but by 2011, the IDR should feature a fully operational Nusajaya, which will boast of the New Castle medical school, a partially operational Puteri Harbour, Danga Bay villas, and the Coastal Highway.

The Khazanah-spearheaded Legoland is expected to be operational only in 2012.

An initial optimism for the IDR was when UEM Land successfully attracted international developers such as Limitless LLC and Damac Holdings to participate as strategic partners in Nusajaya.

Limitless and Damac are two of the bigger investors in Nusajaya, with agreements to develop residential and commercial property at Puteri Harbour, the 688-acre crown jewel of the development.

Both have international reputation and solid financial backing.

Herein lies the catalyst.

For the uninitiated, Dubai-based Damac Holdings, is one of the world’s leading luxury waterfront developers.

It plans to build commercial and residential properties and a private marina with a projected gross development value (GDV) of about RM3.8bil in Puteri Harbour, Nusajaya.

Spanning 44 acres, Damac has commited to invest an initial RM397mil for this project to be undertaken over eight to 10 years.

It will be handled by Damac Properties (M) Sdn Bhd, a subsidiary of Damac Properties LLC, the real estate development unit of Damac.

Meanwhile, UEM Land’s joint venture with Limitless is through its development vehicle Haute Properties Sdn Bhd, where it owns a 40% stake.

It was reported that earlier this year, Limitless has already submitted the layout for the 100-acre residential project in Puteri Harbour .

Haute Properties will develop the 111 acres of the precinct with an initial investment of RM241.8mil.

The development was expected to commence in 2008 and will be completed by 2013 with an estimated GDV in excess of RM1.5bil.

While so far there has been indications of both companies retreating on their agreements, observers close to the company says that no fresh funds have poured in for its Nusajaya development in Iskandar Malaysia.

Afterall, both companies have been grappling with their own problems back home, as the global financial crisis burst the bubble of the Middle Eastern property market.

There have been reports of Damac laying off staff at its headquarters in Tecom, Dubai.

According to Khaleej Times, a Dubai-based newspaper, Damac laid off between 45 and 50 employees in February.

The company axed 200 workers in October last year as the global credit crisis has slowly begun to leave its impact on the property sector.

Earlier in the year, there were reports of employees fired by Damac, that were not paid their full settlement.

According t o an analyst, construction work on Damac’s site has yet to begin.

Damac Properties has some US$30bil worth of projects in the Middle East and North Africa region.

On the other hand, Limitless has nine global projects with a total GDV of US$100bil across UAE, Saudi Arabia, Jordan, Vietnam, Malaysia, Russia and India.

“I heard that Damac may want to scale back on its development in Nusajaya, as they have bigger problems in their other developments elsewhere,” says one analyst who used to track UEM World Bhd.

By The Star (by Tee Lin Say)