IWC to make RM1b profit from Greenland deal

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ISKANDAR Waterfront City Bhd (IWC), formerly known as Tebrau Teguh Bhd, could possibly gain about RM1 billion from the sale of  128 acres of reclaimed land in Tebrau Coast in southeast Johor.

The tract will be sold to Greenland Tebrau Sdn Bhd (GTSB), a joint venture between IWC and Shanghai-based property developer Greenland Group, for RM2.4 billion or RM430 per sq ft — a record price in the region, according to IWC’s spokesperson.

The deal was sealed in Shanghai last Wednesday, witnessed by Johor Menteri Besar Datuk Seri Mohamed Khaled Nordin.

On the same day, IWC’s share price jumped nine sen or 6.21% to RM1.54 on the news.

Tan Sri Lim Kang Hoo, the executive vice-chairman of IWC, could not be reached for comment.

This is the second deal that Greenland has sealed with Lim, the controlling shareholder of IWC. The Chinese group previously invested RM600 million in a 13.6-acre project in Danga Bay, which it is jointly developing with Iskandar Waterfront Holdings Sdn Bhd (IWH).

GTSB, in which IWC has a 20% stake and Greenland 80%, will undertake a mixed-use development, including a snow world theme park and an opera house, on the reclaimed 128 acres.

Based on IWC’s previous deal with Tropicana Corp Bhd involving a 60-acre tract in Tebrau River that was priced at RM444.3 million, the gross land cost translates into RM170 psf. A net land cost of RM252 psf is derived after taking into account a land conversion premium of RM50 million, according to a Aug 12, 2014, report by Kenanga Research.

If the same cost is applied to the 128 acres being acquired by Greenland, the total land cost for IWC (fundamental: 1.65; valuation: 1.50) is RM1.05 billion.

However, the net land cost of RM1.05 billion excludes the infrastructure cost that IWC will have to bear when the development starts. Similarly, the sale price of RM2.4 billion does not take into account the infrastructure cost.

According to an IWC spokesman, the first phase of the development will have a gross development value (GDV) of RM3 billion. It will be launched this year and construction will take about five years, he says.

IWC is 47% owned by IWH, the master developer of 4,000 acres of prime waterfront land in southern Johor, stretching from Danga Bay on the west of Johor Baru to Tebrau Coast on the east.

IWH is a strategic partnership between the Johor government’s Kumpulan Prasarana Rakyat Johor (KPRJ) and Lim through Credence Resources Sdn Bhd. In the last 15 years, IWH has reclaimed over 400 acres in Danga Bay, according to its website.

Details of the payment for the land sale is not known. Industry observers say such a large purchase consideration could involve staggered payments. When asked about the payment scheme, IWC’s spokesman says it is an outright sale of land by Tebrau Bay Sdn Bhd — a subsidiary of IWC — to GTSB.

Greenland is the third China-based developer to kickstart a mega project in southern Johor, where a massive area has been reclaimed in the past two years.

The latest land deals and mega property projects have raised concerns that the coastal area may see an oversupply of properties in the coming years. There are also concerns about the ecosystem and environment along the Johor Straits.

Guangzhou-based R&F Properties Co Ltd is developing Princess [email protected] Puteri, which will deliver some 3,200 residential units to the market. Meanwhile, Country Garden Holdings Co Ltd launched 9,000 residential units last year.

Hong Kong-listed Country Garden is also developing a 5,000-acre man-made island called Forest City on the Tebrau Straits, which will see a mix of residential and commercial units.

The Forest City development is a partnership between Country Garden, Sultan of Johor Sultan Ibrahim Ismail ibni Almarhum Sultan Iskandar, and the state government through KPRJ.  

Besides China-based developers, other foreign developers in the state are Singapore’s CapitaLand Ltd and Australia’s Walker Group. Local developers present in the area include Tropicana (fundamental: 1.30; valuation: 3.0) and Brunsfield International Group.

“IWC is confident that Greenland can bring in the buyers because of its massive business network globally. In any case, this is not an overnight project. The implementation period is between 5 and 15 years. The property market’s condition may take a turn for the better by then,” says the group’s spokesman.

The RM2.4 billion proceeds will certainly help IWC continue with its land reclamation projects in Danga Bay and Tebrau Coast. In June last year, IWC proposed a one-for-one rights issue with one free warrant for every two rights shares to raise RM670 million, for reclamation works in Tebrau Coast.

IWC owns some 980 acres along the Tebrau River, which mostly fronts the water and has easy connectivity with the Johor Causeway and the Sultan Iskandar Custom & Immigration Quarantine Complex as well as Johor Baru through the Eastern Dispersal Link.

According to Kenanga Research, IWC will need to reclaim 786 acres out of the 980 acres, which is currently “under water” in Tebrau Coast. The research firm estimates that the entire landbank may fetch a GDV of RM54 billion, assuming an average selling price of RM600 psf.

“This would imply 29 times GDV over enlarged market cap (capitalisation) ratio, which implies that the group is undervalued against other developers under our coverage [that have an] average of 11 times. It also works out to be RM58 million per acre in terms of GDV per acre,” says Kenanga Research.

The research firm says recent waterfront development deals by China-based developers in the southern Johor coastal area were valued at RM158 million to RM327 million per acre. It adds that the RM58 million GDV per acre ascribed to IWC’s landbank in Tebrau is a conservative estimate.

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This article first appeared in The Edge Malaysia Weekly, on January 26 - February 01 , 2015.