Framing a listing for Iskandar Waterfront
The owner of the biggest parcels of land in the city has an interesting story to tell
IN the books of Tan Sri Lim Kang Hoo, Iskandar Waterfront Holdings Sdn Bhd (IWH) will certainly go for a listing this year. But the frame of its listing -- its shape, form and value proposition to investors -- are things that are still being worked out by those close to the contractor turned developer of cities.
IWH is the master developer of the 4,300acre Danga Bay waterfront city in Johor. It is also the master developer and part equity owner of the iconic Bandar Malaysia located in the heart of Kuala Lumpur on a 486-acre site in Sungai Besi.
Plans for IWH coming to the market is not new. Work had begun on the listing going as far back as 2013, but plans have been put on hold until now because of new developments pertaining to the company and the offering of a value proposition to potential investors.
“It’s the owner of two prime pieces of land in the city that can only appreciate in value over time. The value in the company is what it can offer to investors over the long term as parcels of land are developed. It’s like an annuity ... a long-term investment that will pay off over the long term,” says a fund manager.
Lim is the major shareholder of IWH with a 70% stake, via Credence Resources Sdn Bhd.
The remaining 30% is held by state-owned Kumpulan Prasarana Rakyat Johor (KPRJ).
IWH holds all the waterfront land in Danga Bay and also has a 60% interest in the Johor Bahru Central Business District Development.
It would appear that after much planning and preparation, a listing might soon be on the cards. The stage is set, particularly since it has the very valuable crown jewel in the form of its Bandar Malaysia mandate.
The potential of Bandar Malaysia clearly increases IWH’s value and attractiveness compared with three years ago.
Then, what IWH mainly had was its sea-fronting Iskandar Waterfront City in Danga Bay, with the aim to create a prime waterfront destination meant to be the Shenzhen of Malaysia. Today, along with Bandar Malaysia, the numbers are even larger as land value is in the billions, and the gross development value much more than that. It has partners with financial muscle. There is also an infrastructure angle with Bandar Malaysia linked to 12 different highways and rail lines.
Bandar Malaysia has an estimated land value of RM 26bil.
What IWH has going for itself is its land value - central business district (CBD) land value across the globe only goes up.
Remember that some 20 years ago, the CBD around the Kuala Lumpur City Center area was only valued at RM100 psf. Today, it is a whopping RM4,000 psf. That same effect in KLCC could be replicated in Bandar Malaysia considering the very ambitious developments and infrastructure that have been put in place.
So what is IWH?
Now, should IWH be listed, how would it be classified? It has been described as a master developer but is it more than that?
IWH has brought in strategic partners such as Temasek, The Walker Group and Country Garden, among others, for developments at the Iskandar Waterfront City in Johor.
While the potential for Bandar Malaysia is enormous, it doesn’t quite have a firm track record and recurring income. Execution remains a risk. This is why some regulators are disinclined to allow master developers to list. “I would say that IWH is more like a public private partnership sort of company,” says one observer.
“In Danga Bay Johor for example, they plan everything. The strategic partners, the universities, medical facilities and the economic zone. So it wouldn’t be right simply to value IWH on its asset base and landbank,” adds the observer. “I would call it a partial business trust,” offered another market watcher.
He explains: “They tie up with partners and other developers to carry out projects in Danga Bay. They sell their land to joint venture partners and in return, they get a portion of the profits. So this gives IWH recurring income,” added the market watcher.
For now, investors know IWH as the master developer of two central business districts 4,300 acres of seafronting properties in Danga Bay, Johor, and the 486 acres in Bandar Malaysia. When IWH first attempted a listing in 2013, it was said to be looking to raise between US $800mil (RM 2.48bil) and US$1bil (RM3.11bil) for its initial public offering (IPO).
But that was based entirely on its 4,300-acre Danga Bay waterfront city in Johor Baru.
Almost half the land was under water and being reclaimed in phases. Today, 80% of that land is already reclaimed.
“Danga Bay is valued at RM131bil based on an average price of RM700 psf. And this is just the land price. If we speak about GDV, it is much more than that,” says the observer.
In relation to its waterfront development, IWH has gone into partnerships with 11 developers so far to carry out projects along an eight-km coastal stretch of Danga Bay.
These projects are reported to have a GDV of RM125bil and will be done over the next 10 to 15 years.The Danga Bay development also has a higher plot ratio than most other developments in Iskandar Malaysia. Sources say it has a plot ratio of some 5 times.
A higher plot ratio means the area will have high-density residential and more commercial developments as opposed to a low plot ratio, where mostly terrace houses and bungalow units would be built. So how much is the Johor metropolis worth? If we were to use the general offer launched by IWH for Tebrau Teguh Bhd in 2012 as a guide, Danga Bay would be worth some RM2bil. IWH proposed to acquire 33.15% equity interest in Tebrau Teguh from Kumpulan Prasarana Rakyat Johor (KPRJ) for RM192 million or 76 sen per share.
Instead of cash, KPRJ got an additional 10% in IWH. Hence if this 10% stake in IWH is worth RM192mil, the entity in its entirety is worth about RM1.92bil.
However, that land could be worth a lot more as the valuer, CH Williams (Talhar & Wong) had valued the land at between RM7 and RM50 psf, depending on whether it is city or plantation land.
The potential of Bandar Malaysia
Bandar Malaysia is a mixed-use transit orientated development strategically located in the heart of Greater Kuala Lumpur, to be developed on a 486-acre site in Sungai Besi.
It is planned as Kuala Lumpur’s gateway to the High Speed Rail (HSR) to Singapore and to become a central transportation hub in the city via MRT1 line 2 and line 3, KTM1, ERL1 (Airport Transit), BRT1 and future access to major highway networks.
The project, which will be an integrated underground city, is modelled after Canada’s Montreal underground city, where it will include financial and commercial centres, a tourism centre, as well as a hub for multinational corporations (MNCs).
With an estimated gross development value of RM200bil, Bandar Malaysia is located on the former Sungai Besi air force base. Its development will be carried out over three to four phases and expected take 20 to 25 years to complete. “If we were to value the land in Bandar Malaysia at about RM1,000 psf, this would value the land at about RM26bil. This could be the cheapest you can get, for a piece of a central business district land,” adds the observer. Furthermore, the plot ratio in Bandar Malaysia is eight times, whereas for Iskandar Waterfront in Johor, it is about five times.
In December 2015, IWH-CREC Sdn Bhd, a consortium comprising of IWH and China Railway Engineering Corporation (M) Sdn Bhd executed a share sale and purchase agreement with 1Malaysia Development Bhd to acquire 60% equity interest in Bandar Malaysia Sdn Bhd to jointly develop the Bandar Malaysia project for RM7.4bil. The remaining 40% is held by the 1Malaysia Development Bhd (1MDB) and may be transferred to the Finance Ministry. China’s construction giant, China Railway Engineering Corp (CREC), formed a joint-venture company - IWH-CREC - to take over a 60% stake in the Bandar Malaysia project for RM7.41bil.
The deal valued the 486 acres of land at RM12.35bil. CREC owns a 40% stake in the JV while IWH, which is controlled by Lim, owns 60%. Shortly after IWH-CREC bought into the Bandar Malaysia project, the Government announced that the high-speed rail (HSR),which will ply between Singapore and Kuala Lumpur, would have its terminal in Bandar Malaysia.
It also realigned the mass rapid transit Line 2 so that it passed the site - a move to make Bandar Malaysia a transport hub for Greater Kuala Lumpur. The involvement of IWH in the Bandar Malaysia project creates an important link with the proposed terminal for the HSR project and other on-going developments in Iskandar Malaysia “With Bandar Malaysia, this is also a way for Malaysia to bring in foreign direct investments,” says the observer.
Meanwhile, work is certainly underway to make Bandar Malaysia a reality.
Recently, it announced that it is getting domestic and foreign developers and investors to participate in the development of the project, but will give priority to local parties.
In a newspaper advertisement recently, Ministry of Finance Inc and Iskandar Waterfront Holdings and China Railway Engineering Corp (IWH-CREC) said they were seeking interested parties to develop the land either through the purchase of land parcels or as a single block development.
Major player: Lim is the major shareholder of IWH with a 70% stake via Credence Resources Sdn Bhd. The remaining 30% is held by state-owned Kumpulan Prasarana Rakyat Johor.