SP Setia expands its property portfolio into China

It will be a busy period ahead for SP Setia Bhd and Rimbunan Hijau Group as they are in a joint venture with Qinzhou Jingu Investment Co Ltd to develop the Qinzhou Industrial Park (QIP) starting with the RM2.6bil start-up district of QIP.

Spanning 1,945 acres, the start-up district of QIP will give SP Setia a foothold in the vast China market as it now owns 45% equity stake in a Malaysian joint-venture (JV) company known as Qinzhou Development (M) Consortium Sdn Bhd.

Qinzhou Development will hold 49% stake of the China-Malaysia Qinzhou Industrial Park Investment Co Ltd (QIPIC) to be formed with Qinzhou Jingu as its JV partner.

SP Setia executive vice-president and chief financial officer Datuk Teow Leong Seng tells StarBizWeek that the sizeable and high-profile nature of the project was envisaged to provide a significant boost to its long-term ambitions of achieving meaningful and sustainable overseas expansion, which already included projects in Australia, Vietnam and Singapore.

“QIP presents a unique opportunity for the group to participate in the development of a government-to-government (G2G) supported project that is well-placed to benefit from the growth in China-Asean trade and China's own continuing economic growth,” he says.

Besides SP Setia, Rimbunan Hijau has a 45% stake while Datuk Beh Hang Kong and James Lau Sze Yuan own 5% stake each in the Malaysian JV.

Though details remain scarce as the parties are still in the framework stage of the agreement, Teow said that investors and enterprises registered in the QIP could look forward to a 15% reduced corporate income tax rate and a host of investment friendly incentives to encourage industries registered in the QIP.

The Chinese premier proposed the QIP during the Malaysia-China Economic, Trade & Investment Cooperation Forum in April 2011, and it will become the third industrial park in China to be developed under a G2G collaboration, following Suzhou Industrial Park and Tianjin Eco-City.

Though the Chinese government had recently introduced several cooling measures to curb rising property prices, the challenges met by foreign parties attempting to tackle Chinese market might still be a concern.

“Your network or guanxi is the way things are done in China, and your guanxi could open many doors for you. Looking at the joint venture between the Malaysian parties and Qinzhou Jingu, communication barrier is non-existent and it seems that the mentioned parties can get things going, with the backing of the Chinese and Malaysian governments,” says an analyst.

He says the cooling measures implemented might also bode well for the JV as steady property prices might not expose the companies to volatile market trends.

To sweeten things, the Chinese government has also pledged that all preferential policies of China's West Region Development and Guangxi Beibu Gulf Economic Zone would be applicable to the QIP.

Apart from that Qinzhou Jingu has also committed to inject the land into the JV vehicle, QIPIC, at cost price and not seek any profit from its capital contribution by the provision of land.

QIP consists of five functional districts, which are industrial, residential, supporting facilities, port new city production central, life central and scientific and technology research service.

The industrial park is located 10km south of Qinzhou City and 5km north of the Guangxi Qinzhou Free Trade Port Area, a national economic and technological development zone.

Maybank Investment Research says QIP is strategically located between the port cities of Beihai City to the east and Fangchenggang City to the west.

“The former is a developing hub for shipping oil between South-East Asia and China and the latter is a major regional shipping and trade hub between Guangxi and Vietnam. QIP is accessible from these two port cities and from Nanning to its north via existing expressways,” it says.

The added accessibility to QIP would be improved upon the completion of the Liuging-Qinzhou Expressway and the Coastal Highway to the South.

By developing QIP, the new JV vehicle is also trying to get its hands on the more developed Binhai New Town. It is seeking approval from the Chinese government to allow up to 30% of the commercial and residential land in the start-up district to be swapped for another piece of commercial and residential land.

This deal will ultimately allow the JV company to gain access to be part of the development at Binhai New Town, which has a total planned area of 110 sq km and a net development area of 45 sq km.

Hong Leong Investment Bank Research says in a report that the latest development demonstrates the company's commitment to overseas expansion despite their previous setbacks in China and Vietnam.

“Positive but hard to quantify, given the lack of information on gross development value and product mix. We believe SP Setia's products will likely be landed townships similar to Bandar Setia Alam, catering to local conditions over there,” it says.

“We also see this as a harbinger of future goodies domestically, as we consider SP Setia a potential frontrunner for government-redevelopment projects in Sungai Buloh, thanks to its Permodalan Nasional Bhd parentage,” it says.

By The Star