Fram­ing a list­ing for Iskan­dar Wa­ter­front

The owner of the big­gest parcels of land in the city has an in­ter­est­ing story to tell

The Star Malaysia - StarBiz - - Companies & Strategies - By TEE LIN SAY lin­say@thes­

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.

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