Sara-Timur expands

New borders: Artist’s impression of Mersing Laguna – a multi-billion ringgit integrated resort development on three reclaimed islands – in Johor.

KUCHING-based construction and property development company Sara-Timur Sdn Bhd is building its presence in Peninsular Malaysia with a number of projects in the pipeline.

The company has an order book of RM2bil worth of construction projects and RM1.8bil of development projects.

Sara-Timur has two development projects in the peninsular KB Sentral at Bandar Baru Tunjong in Kota Bahru, Kelantan; and Mersing Laguna in Johor. It is also undertaking construction projects at KL Sentral and Utama Lodge Condo in OUG, Kuala Lumpur; and Teliti Data Centre in Nilai, Negeri Sembilan.

Sara-Timur managing director John Loi says with the company's successful venture to Peninsular Malaysia, it has established a platform to grow into a better known industry player.

“There are more opportunities here in Peninsular Malaysia for us and we intend to build up the company's presence here,” he tells StarBizWeek.

KB Sentral project in Kota Bahru which is to kick off around the middle of this year for completion in five years, will have a gross development value of RM1.2bil.

The project is a joint-venture urban development between Perbadanan Menteri Besar Kelantan, Tunjong Development Corporation Sdn Bhd and Sara-Timur Urban Development Sdn Bhd.

The 42 acres of new lifestyle project in Kota Bahru is part of the 2,000 acres of new urban redevelopment project of Bandar Baru Tunjong by the Kelantan state government.

Located about 6km from the Kota Bharu town, the new business hub is to meet the growing needs of the local populace.

Loi says the development is based on the Intelligent City concept of cosmopolitan community living where occupants will get to enjoy high-speed broadband connectivity.

Meanwhile, Mersing Laguna is a multi-billion ringgit integrated resort development on three reclaimed islands totalling over 2,000 acres set in the South China Sea off the town of Mersing in Johor.

The islands are designed as an oasis dotted by premier residential, commercial and tourism-related developments encased in an eco-friendly environment.

The developer of Mersing Laguna, Radiant Starfish Development Bhd, has awarded one of the construction packages, parcel 12 to Radiant Sara-Timur International Sdn Bhd.

Loi says the award is based on a turnkey design and build contract valued at RM360mil for the construction of an integrated resort development comprising a 5-star 216-room hotel, 70 service apartments, and 73 villas.

Radiant Sara-Timur has also been awarded another turnkey design and build package for an estimated sum of RM370mil by the same developer that involves the redevelopment of the existing Mersing township. Also known as the “Mersing Urban Renewal Development Project”, Loi says the company will apply its experience in the urban renewal project of the Sandakan Harbor Front project to help revitalise Mersing.

“The urban renewal program that includes the building of new business class hotels, recreational parks, cultural centres, medical centres, and commercial and business areas, will cater to the growing population by meeting their aspirations and needs. There will also be provision for the recovery of the foreshore around Mersing, allowing for the development of landscaped boulevards and recreational amenities for the local population,” he explains.

Sara-Timur also has two projects in Kota Kinabalu Jade Residence and the Jesselton Point Hotel comprising 140 rooms, 118 hotel suites and 25 business suites.

Projects it has completed to-date include the Sandakan Harbour Square, Sutera Harbour Hotel and Resort, Sarawak State Stadium, and Taman Tiong Ung Siew in Sibu.

Loi: ‘Sara-Timur has the resources to deliver sustainable solutions in both single-use and mixed-use developments and urban redevelopments.’

Loi says Sara-Timur will increase its hotel assets from one in Sandakan currently to other assets in Mersing, Kota Bahru and Kota Kinabalu.

Despite the challenging external front, he says the outlook for the local construction and property sectors looks quite stable.

“In the past three years, the company's turnover has doubled to RM350mil for the financial year (FY) ending May 31. We are confident the performance will get better going forward.”

Loi says the company hopes its revenue from property development will increase to 50% in the next three years from less than 15% in financial year 2011.

Sara-Timur has recently set up its corporate headquarters at Solaris Dutamas in Kuala Lumpur, and is looking to increase its paid-up capital to RM18mil from RM10mil now.

He says the company's forte lies in urban renewal projects to give a new lease of life to old dilapidated townships around the country.

“Sara-Timur has the resources to deliver sustainable solutions in both single-use and mixed-use developments and urban redevelopments. Its capabilities include building and civil engineering contracts comprising project management, turnkey design and construction, and project partnering.

“We choose to support new development and urban redevelopment because of the incredible impact they make on the lives of the families and the communities.

“New developments also provide attractive investment opportunities. They form the main elements of a new strategy by our local governments to see to the implementation of both new development and urban redevelopment plans through the attraction of private capital,” Loi points out.

To finance the company's expansion, Loi does not discount the possibility of Sara-Timur making an initial public offering on the Main Market of Bursa Malaysia.

“We are looking at the option and hopefully our listing plans will materialise by this year,” he says.

By The Star

SP Setia must take possession of Pisa first

The timing of property developer SP Setia Bhd's new launches for its 2012 fiscal year in Penang appears to hinge on whether the company is given vacant possession of the Penang International Sports Arena (Pisa) by the first quarter of this year to build the RM300 million Subterranean Penang International Convention and Exhibition (sPICE) Centre.

Business Times has learnt that the property giant's application for planning approval to proceed with its upmarket Setia V Residences project along Gurney Drive cannot be deliberated as yet by the Penang Island Municipal Council, until the time SP Setia takes over Pisa officially.

Three other projects in the pipeline for its fiscal year ending October 31 2012 are located in the Relau and Sungai Ara areas.

The company on January 3 took over as operator of the building and it has already ploughed in RM1 million to spruce it up, sources say.

"The problem now lies in the fact that SP Setia is unable to avail itself yet of the increased density privilege it was accorded as part of the sPICE deal," one source said.

SP Setia was granted the right to build an additional 1,500 residential units over and above the density limit of its existing and future projects in Penang over a 30-year period when it inked an agreement with the Penang authorities last year to build the convention centre.

The project includes 2.8ha public park and an upgraded and refurbished Pisa.

The move for SP Setia to be granted additional density was viewed positively by analysts who noted that it would enhance the gross development value of some of the company's proposed high-rise projects.

Based on the existing density limit, it is learnt, Setia V Residences can only build about 50 units on the 0.8ha site, which has a dual frontage of the sea-fronting Gurney Drive and Jalan Kelawai in Pulau Tikus.

Analysts had also hailed the fact that with the additional density, SP Setia would now have a competitive edge over other developers in bidding for land in Penang, since it would be in a position to pay higher land costs, given the company's ability to build beyond the "normal" allowed density.

SP Setia officials could not be reached for comment.

Under the agreement signed in August last year between Penang island Municipal Council and SP Setia's subsidiary, Eco Meridian, the proposed sPICE Centre will feature a basement car park and a green park on the roof top. The project, which is expected to be completed by 2014, includes a 2.8ha public park, refurbishing, repairing and upgrading Pisa and the Aquatic Centre as well as construction of a new hotel, retail outlets and a car park.

By Business Times

PNB, Liew raise offer for SP Setia to RM3.95 a share

KUALA LUMPUR: Permodalan Nasional Bhd (PNB)’s takeover bid for property developer SP Setia Bhd’s shares has takena new turn, and closure.

The country’s largest fund manager has revised upwards its offer price to RM3.95 for every SP Setia share, up from RM3.90 previously.

Equally interesting, SP Setia founder Tan Sri Liew Kee Sin will now be joining the governmentlinked asset manager in making the revised offer.

In a statement yesterday, SP Setia said PNB and Liew will also now pay 96 sen per SP Setia warrant they do not already own, instead of the earlier 91 sen offered by PNB alone.

“The joint offer enables a closure to be arrived at finally on uncertainties over takeover matters.

More importantly, it will provide a fresh launching pad for SP Setia to continue pursuing its quest to create greater value to
all stakeholders,”Liew said in the statement.

As a joint offeror, SP Setia said Liew will not be accepting
the revised offer. Instead, he will hold on to his direct eight per cent stake amounting to 158.2 million shares.

It also noted that PNB had given Liew an option to sell his stake progessively in tranches after three years at RM3.95 a share.

Liew said he is “highly appreciative” of PNB’s put option offer as it will enable him to focus on doing his best to grow the underlying value of the company.

“After many months’ work, I am happy that we have managed to come up with what I believe is a win-win solution for everyone, especially our customers, employees and all shareholders of SP
Setia,” he added.

SP Setia said a management agreement would also be signed between the company, PNB and Liew for the latter to remain as group president and chief executive officer for three years, after the close of the revised offer.

By Business Times

PNB and Liew in Joint offer for SP Setia

KUALA LUMPUR: Tan Sri Liew Kee Sin and the country's largest asset manager, Permodalan Nasional Bhd (PNB), are making a joint revised offer for SP Setia Bhd in a bid to safeguard the interests of all shareholders and maintain management continuity in the company.

This new turn of events followed the move by PNB to raise its stake in property developer SP Setia via a conditional offer made last September to gain control of the company.

The new offer price has been revised to RM3.95 per share from RM3.90 while the offer for the warrants has been revised to 96 sen per warrant from 91 sen.

According to sources, the joint offer was arrived at following meetings between Liew, who is president and chief executive officer of SP Setia, and PNB president-cum-group chief executive Tan Sri Hamad Kama Piah Che Othman.

SP Setia board of directors said in an announcement to the stock exchange that they received the notice of revised offer from Maybank Investment Bank Bhd issued on behalf of PNB and Liew. The company had earlier asked for the trading of its shares to be suspended, with the last traded price at RM3.88.

As part of the offer, Liew, PNB and SP Setia would enter into a management agreement for Liew to remain at the helm for a period of three years following the close of the revised offer.

He would continue to oversee and manage the operations of SP Setia within the ordinary course of the company's business, appoint and remunerate managers and employees as well as enter into contracts or arrangements for and on behalf of the company.

Liew told StarBizWeek that the key point of the joint offer was the strong marriage that would arise, with SP Setia able to lean on the support of cash-rich PNB for expansion and growth while PNB would have invested in a trusted brand with a regional presence.

“It's a win-win situation and there'll be no change in management,” Liew said, adding that PNB had remained supportive of the company's ventures abroad, including SP Setia's failed bid for the Battersea power station in Great Britain, even during the period of the first offer.

He said the previous offer caused a bit of confusion as the company's management was in the dark as to PNB's intentions. “But the management agreement shows that PNB recognises that without a strong team, SP Setia's future will not be so bright,” Liew pointed out.

He said the revised offer was also to “appease ruffled feathers out there” while his role as a party acting in concert was to overcome the Securities Commission's objections as well as the rules on takeovers and mergers.

Liew, who has an 8% direct stake in the company, would not accept the revised offer but would be given a put option in the three years following the close of the takeover offer. This would give him the right to sell his stake to PNB in tranches at the same price of RM3.95 per share.

He said the revised offer and the conditions attached to it, including retaining the current management team, showed PNB's genuine interest and sincerity as an investor.

Hamad had taken the step of reassuring the company and stakeholders in a joint statement with Liew last October that the latter would continue to lead SP Setia and manage its day-to-day operations.

“On our part, we'll now have to prove ourselves worthy as they've been supportive of all the key thrusts of the company, be it in eco-homes, township development, luxury condominiums, high-rise residentials and integrated commercial projects,” Liew said.

By The Star

KrisAssets plans REIT exercise

PETALING JAYA: KrisAssets Holdings Bhd is likely to inject its two retail assets in Mid Valley City the Mid Valley Megamall and The Gardens shopping mall into a retail real estate and investment trust (REIT) this year.

An industry source said the company had already engaged a merchant bank to look into the REIT exercise.

“The two assets have an estimated total asset value of close to RM4bil which makes KrisAssets a strong candidate to sponsor a REIT to unlock the value of its assets for its shareholders,” an analyst with a local brokerage told StarBizWeek.

The Mid Valley Megamall, which opened in 1999, has a net lettable area of 1.7 million sq ft on 5 floors that are occupied by about 400 stores. It also has a convention centre and two hotels Cititel and Boulevard. Its retail space is 100% occupied and commands average rental rates of RM10.50 to RM10.60 per sq ft.

The Gardens at Mid Valley City, which opened in September 2007, is the second phase of Mid Valley City. The Gardens contains a high-end shopping mall with branded labels. Its 830,000 sq ft of retail space is about 97% occupied with average rental rates of RM9.40.

The analyst said KrisAssets would be able to take advantage of the low prevailing tax structure accorded to REITs.

The REIT would be exempted from corporate tax if it distributes at least 90% of its total annual income to unit holders.

He said retail REITs had proven to be popular among the investing public but good retail assets had become a scarce commodity now.

Financing for such REITs was still available and the onus was on the sponsor companies to plan for more holistic retail projects that could cater to the changing needs of city folks, he added.

Another bank-backed analyst said the strong market response to the recent listing of Pavilion REIT, which has been oversubscribed by about 28 times, as well as the yield compression on select well-managed REITs including CapitaMall Trust, could have triggered KrisAssets' plan to expedite its REIT plan.

“Furthermore, in an environment where bank interest rates are expected to remain flat at best, we expect sustained buying interests on the REITs. This means that the company's parent, IGB Corp, which owns 75% of KrisAssets, would be able to extract generous valuations for its assets by divesting them to the REIT,” he added.

He said the REIT would be able to raise enough funds for IGB to undertake a mixed development project in London. IGB is said to be bidding for the project in west London, believed to be its first development project there.

In a recent report, RHB Research said it was positive on retail REITs although on average, they offered slightly lower yields compared with other sub-segment REITs.

“A strategic combination of asset acquisitions, asset-enhancement initiatives and creative events to drive shopper footfalls is crucial to deliver sustainable distribution per unit (DPU) growth.

“Retail REITs offer the highest earnings per unit (EPU) and DPU growth within our coverage. The office segment continues to experience massive oversupply, while industrial production is generally more sensitive to GDP growth.

“Apart from buying for the REIT's yield, investors should also ride on the rising valuations of scarced quality retail properties,” the report noted.

DTZ Research noted that retail REITs were subject to macro-economic risk and any downturn in the economy would have an impact on their performance.

“Notwithstanding the cautious consumer spending, the outlook for the retail sector remains positive with sales growth forecast to move upwards to 6.5% in 2012 from 6.0% for 2011,” it added.

By The Star

Scanwolf unit undertakes property project in bidor

KUALA LUMPUR: Scanwolf Corp Bhd's subsidiary, Scanwolf Development Sdn Bhd, signed a joint-venture agreement with SQ Land Sdn Bhd yesterday to undertake the proposed development of 128 plots of mixed development land into five units of shop houses and 123 units of terrace houses in Bidor, Perak.

Scanwolf told Bursa Malaysia yesterday the joint venture allowed the company to venture into the property development business with minimum capital investment.

By Bernama

China’s housing slowdown to cut big hole in GDP growth

China’S cooling property market could shave more than 2 percentage points off 2012 growth, forcing Beijing to decide just how badly it wants to keep the economy expanding at more than 8% a year.

Even if the world’s second-biggest economy avoids a housing crash, slower property investment is almost certain to constrain growth. That assumption was built into economists’ predictions that the economy will slow in 2012, but data released this week suggests housing may take an even bigger chunk out of growth.

China’s investment in real estate development rose 28% to 6.17 trillion yuan (US$977.67bil) in 2011 a full US$200bil more than the United States put into residential real estate at the peak of its housing bubble in 2005.

Unlike the United States, China does not have an oversupply of housing. In fact, the government has pledged to build 7 million units of public housing in 2012 after an estimated 10 million in 2011.

But in order for property investment to add to GDP growth, it has to keep getting even larger each year, and with real estate prices falling and developers scrounging for credit, China will be hard pressed to outdo 2011’s strong showing.

“If they build the same amount (in 2012) that they did last year, which is still a phenomenal rate of construction, then it would take GDP down to 6.6%,” said Patrick Chovanec, an economist who teaches at Tsinghua University’s School of Economics and Management in Beijing.

That would be a dramatic slowdown from 2011’s 9.2% growth, and it doesn’t even include potential indirect impacts that typically come with a housing slowdown, such as falling demand for building materials or a rise in banks’ bad debts.

Worthy projections

China’s latest economic plan targets GDP growth of 7%, but economists widely consider 8% as the minimum needed to generate sufficient job growth and support social stability top priorities for the Communist Party.

The Chinese phrase “bao ba”, or protect 8, is a commonly used line, illustrating Beijing’s unwritten imperative to keep annual growth above that threshold.

“It’s something that’s almost ingrained within the (Communist) party,” said Alistair Thornton, an economist with IHS Global Insight in Beijing.

Thornton thinks 2012 growth will dip to the 7.5% to 8% range, largely because of the housing slowdown. But he said it could easily drift down to 7% if China chooses not to prop up the property market.

UBS economist Tao Wang predicted property investment growth would halve in 2012, less dire than Chovanec’s prediction for a flat reading. That leaves GDP right around the 8% mark.

“We continue to hold the view that property investment will slow sharply but will not collapse in 2012,” she said.

Data released on Wednesday showed Chinese house prices have fallen for three consecutive months as of December, and property developers are bracing for a brutal 2012. A Reuters poll released on Jan 10 found economists expected property prices to fall 10% to 20% this year.

Chinese officials have spent the past 18 months cracking down on property speculation to try to keep the market from overheating, and it appears to be in no hurry to change course now. A housing bubble and bust would inflict far more economic damage than a policy-induced slowdown.

In Beijing, which enjoyed one of the country’s biggest price gains in 2010 but is now feeling the pinch of the government’s tightening measures, property developers were still hoping that policymakers will loosen their grip.

“It totally depends on whether the government will relax policies or not,” said a young sales agent surnamed Cui, when asked about the likely direction of property prices.

It would take something more severe than weak property sales to alter the policy course.

Beijing seems willing to accept that some developers will go out of business, but rising unemployment or a steep drop in growth would probably prompt Beijing to lift some of the real estate purchase restrictions put in place since 2010.

“While the central government does not generally sympathise with developers, rapidly decelerating real estate investment growth is a major concern,” analysts at Macquarie wrote in a Jan 17 note to clients.

Holding the line

There is little doubt that China has the policy tools available to keep growth above 8%, but it is not clear that policymakers are willing to live with the consequences. Real estate investment accounted for 13% of China’s GDP in 2011, according to government data released on Tuesday, bigger than the 10% estimate that some economists had assumed. That means a slowdown will weigh more heavily on growth, and the remaining 87% of the economy will have to pull even harder to take up the slack.

Net exports subtracted from GDP growth in 2011 and will probably do so again this year, so that leaves consumption and government spending as the two main economic drivers.

China could offer incentives to spur demand for big-ticket items such as cars or appliances, which it did with good success during the 2009 downturn.

But that strategy must be used sparingly. Incentive schemes tend to pull forward demand, essentially borrowing sales from later periods.

“You just can’t force people to spend more money,” Global Insight’s Thornton said.

As for government spending, China went on stimulus binge to combat the global recession in 2009, but local government debt soared to US$1.7 trillion and problem loans are growing. China’s audit office said in December it had identified US$84bil worth of irregularities with local government debt.

“They could pump a lot of money into this economy and keep the investment boom going,” Tsinghua’s Chovanec said. “All of those things have a cost and the cost might be pretty steep.”

By Reuters