IOI Prop vindicated

London-listed Hongkong Land buys 33% in Singapore development

PETALING JAYA: IOI Properties Group Bhd (IOI Prop), which has been open to scrutiny after having paid a record price for land in Singapore’s central business district (CBD), received a boost when it sold a 33% share of the land to Londonlisted Hongkong Land Int Holdings Ltd.

The sale of a portion of the land will ease the debt and capital requirement pressure on IOI Prop to develop the land.

IOI Prop is selling the slice of the land through a joint venture (JV) with Hongkong Land for S$940mil (RM2.89bil), where both parties will then co-develop the 1.1ha within Marina Bay and Singapore’s CBD.

Notably, Hongkong Land was one of the bidders for the land when it was put up for tender by the Singapore government initially.

Hongkong Land had then teamed up with Cheung Kong Holdings Ltd and offered S$2.13bil for the parcel of land.

IOI Prop, however, won the bid after offering and paying the highest price of S$2.57bil (RM7.77bil).

With Hongkong Land now partnering with IOI Prop to develop the sale, the sale of the 33% stake is seen as a vindication of IOI Prop’s decision to pay a steep price for the land late last year.

IOI Prop will hold the remaining 67% stake in the JV company called Wealthy Link, which will develop and manage the land.

Singapore has been IOI Prop’s biggest overseas contributor to revenue, with 38% of total group revenue coming from the republic. Revenue from China formed 10% of the group’s total.

RHB Research noted that rising net gearing and significant funding requirements to develop the Central Boulevard land on its own have been investors’ key concerns at IOI Prop since the company successfully won the tender.

“With this JV, we believe that the participation of Hongkong Land would help ease the cash-flow burden at IOI Prop. As the funding structure for the construction loan has yet to be finalised, we are keeping our net gearing projections unchanged for now,” it said.

With the contribution from Singapore and China a big factor in IOI Prop’s business, the company is confident that property sales for its financial year ending June 2017 will exceed last year’s amount of RM2.2bil.

“We are optimistic and are looking at a double-digit growth in sales,” IOI Prop’s chief operating officer Teh Chin Guan told StarBiz.

IOI Prop’s chief executive officer Lee Yeow Seng said the group was looking forward to working with Hongkong Land on the new development.

“Our new JV allows Hongkong Land to expand

its portfolio of prime commercial properties in Marina Bay and demonstrates our long-term confidence in the Singapore property market. We are delighted to partner with IOI Prop to deliver the exceptional levels of design, construction and management that our tenants expect,” Hongkong Land’s chief executive Robert Wong said in a statement.

Hongkong Land is a property investment, management and development group that was founded in 1889. The group owns and manages almost 800,000 sq m of prime office and luxury retail property mainly in Hong Kong and Singapore. The land Hongkong Land is buying into is adjacent to One Raffles Quay and close to the Marina Bay Financial Centre.

IOI Prop and Hongkong Land plan to build two office towers of approximately 1,260,000 sq ft of leasable space and a small retail podium of approximately 30,000 sq ft on the land.

IOI Prop paid S$18,180 (RM56,557) per sq m of gross floor area, or S$1,688.98 per sq ft, for the land in Marina Bay in November last year.

Analysts are generally upbeat on this development, particularly that it would lighten the load on the company’s balance sheet.

RHB Research in its report said that the formalisation of the JV agreement was subject to approvals from Singapore’s Urban Redevelopment Authority and Bank Negara.

RHB Research also noted that the transacted land price with Hongkong Land was inclusive of the goods and services tax and stamp duty incurred, apart from the original land cost.

“The proceeds will be used to reduce IOI Prop’s existing bridging loan and some corporate guarantees. The proposed JV is expected to be completed by the first quarter of 2018,” it said.

RHB Research has maintained its “buy” rating on IOI Prop with a target price of RM2.57, which is based on a 40% discount to its realised net asset value (RNAV).

Hong Leong Investment Bank Research, meanwhile, said that assuming Hongkong Land would fund 33% of the land cost of RM2.6bil, coupled with the recently raised RM1.5bil from the concluded right issues, IOI Prop’s gearing level will ease to around 0.5 times from more than 0.7 times.

“While no official gross development value (GDV) is being determined at current junctures, the RNAV per share for this development is estimated at circa RM0.21 (5.2% of our RNAV) based on our assumption of 50% land cost to GDV and pretax profit margins of 17%,” the research said.