WCT bags Contractor of The Year Award

The Construction Industry Development Board (CIDB) has presented WCT Bhd with the Contractor of The Year Award during the Malaysian Construction Industry Excellence Awards 2010 (MCIEA 2010) last night.

WCT is a well-known name in the global construction market. Its mega projects abroad include the Abu Dhabi F1 Circuit, the New Doha International Airport, Bahrain City Centre, the Bahrain International F1 Circuit and Platinum Plaza in Ho Chi Minh, Vietnam.

"The group has reached the far shores of development, literally and metaphorically, making it an icon to the Malaysian construction industry," CIDB said in a statement.

The group, along with Sunway Construction Sdn Bhd and ShinEversendai Engineering (M) Sdn Bhd were also presented the International Achievement Award - Special Mention which honours the achievement of Malaysian contractors registered with CIDB for their outstanding and credible recognition in overseas construction venture.

WCT adviser Chua Siow Leng was presented the Prominent Player Award to recognise his more than two decades of contribution towards the betterment of the industry.

CIDB has named property developer Ireka Corp Bhd founder Lai Siew Wah as Chief Executive Officer of the Year.

Putra Perdana Construction Sdn Bhd was also recognised for its Energy Commission diamond building, bringing home the Innovation Award.

Mergers spice up the property sector

The property sector has not witnessed more invigorating times than that seen in recent weeks, with the spate of mergers that promises to build large companies with huge market value and even larger land banks.

Starting the siren of mergers in the sector were UEM Land Bhd and Sunrise Bhd, to be followed by Malaysian Resources Corp Bhd and IJM Land Bhd, and Sunrise City Bhd and Sunway Holdings Bhd. The latter two were announced just over the week.

These will result in the creation of three property companies with over US$1bil in market capitalisation each.

In fact, the merged entities of UEM Land-Sunrise (RM9.8bil) and IJM Land-MRCB (RM7.2bil) will have higher capitalisations then property bellwhether SP Setia Bhd (RM5.2bil).

Why the deluge of M&A activities in the sector? Analysts attribute it to a combination of reasons.

In the cases of Sunrise-UEM Land and MRCB-IJM Land, it is hoped that through these mergers, the government-linked companies (GLCs) can move forward to stamp their mark as regional champions.

What better way is there then to merge with companies which have strong branding, sound delivery and impressive track record? asks an observer.


A Light Rail Transit train passes a construction site in Kuala Lumpur. Potential takeover targets are companies with large land bank in KL. — AFP

Another reason for the current consolidation could be players trying to get a bigger slice of land redevelopment projects created by the proposed mass rapid transit (MRT) system.

CIMB research head Terence Wong says the mergers between the GLCs and private companies show that there is a significant push for execution and performance.

From my conversations with property developers over the last two weeks, I have the impression that there is now a greater urgency for M&As. The formation of two large companies from the mergers of UEM Land-Sunrise and IJM Land-MRCB would pose a threat to other smaller companies in that the former will have more resources and liquidity, says Wong.


Terence Wong ... ‘The formation of large companies would post a threat to other smaller companies.’

Another benefit for these entities which on a stand-alone basis were not too appealing to foreign investors given their size (or lack of it), would post-merger have the economies of scale to draw these investors' attention, says Prudential Fund Management Bhd fund manager Lee Hwa Seng.

The bigger size of these companies will make them more investable to foreign investors. These companies will now be able to compete with their regional counterparts, he says.

Indeed, as MIDF-Amanah CEO Scott Lim says, Malaysian corporates are entering an interesting phase in the market. For the first time, GLCs are actively looking for expertise from the private sector to ready themselves for the next phase of development.

In Malaysia, all major land banks are government-owned. The reason why private sector companies such as Sunrise and IJM Land are roped in, is because they have the branding and expertise. Hence, what you're seeing now is not just the making of bigger companies, but stronger ones, says Lim.

Lee concurs: If a property company has a good track record but is a small player, it may not be good enough as the company does not have the balance sheet to acquire landbank. On the other hand, what the GLCs may lack in expertise or branding, they make up in landbank and government funds. So the public-private partnership is a formula that should work.

Buy land vs companies

HwangDBS Research analyst Yee Mei Hui makes an interesting point. She says it makes sense for GLCs to buy over property companies rather than land as valuations of these companies are still relatively attractive, whereas land prices have appreciated significantly.

Driving home this point is the fact that property counters are trading at an average of 35% discount to their net asset value (NAV). In fact, most of them are also trading at a discount to their net tangible asset.

Almost all property companies that merge can break up their assets and unlock more value out of their existing land bank, says Wong.

Also over the week, YTL Corp Bhd announced a revamp of its property operations under a proposal to inject all its property development assets and projects into YTL Land & Development Bhd. Yee expects the deal to transform YTL Land from an urban renewal developer in Sentul and Sg Besi to a prime city centre developer in Kuala Lumpur and Singapore.

(YTL Corp has proposed to inject its wholly-owned YTL Westwood Properties Pte Ltd, which owns a parcel of development land at Orchard Boulevard, Singapore and its 70%-owned Lakefront Pte Ltd which owns 13 pieces of land at Sentosa Cove Singapore into YTL Land.)

In Kuala Lumpur, YTL Land owns land in the Kuala Lumpur City Centre, Jalan Bukit Bintang, Jalan U-Thant and Brickfields, which is next to KL Sentral.

So, who's next?

There is expectation that the spate of recent proposed mergers will unleash another slew of merger activities among other industry players to avoid being left behind in the race to be bigger and better. Potential targets, says an analyst, could be those with large prime land bank in Kuala Lumpur with shareholders that hold concentrated stakes. Those who fit these descriptions include Sime Darby Bhd, SP Setia Bhd and other property companies owned by Permodalan Nasional Bhd (PNB).

Lim expect the M&A phase to accelerate over the next few months.

Presently, PNB is the major shareholder of SP Setia with a 32.9% stake. PNB also owns unlisted property assets I&P Bhd, Petaling Garden Bhd and Pelangi Bhd as well as Sime Darby Property Bhd via its 52% stake in Sime Darby. PNB also has a 22% stake in Mah Sing Bhd.

Currently, Sime Darby has one of the largest landbanks in the country. Its subsidiary Sime Darby Property Bhd owns 3,653 ha of development properties in Selangor and Kuala Lumpur. It also has 5,022 ha of development properties in Australia and China.

A merger between Sime Properties and SP Setia will see an even bigger creation than what we've seen so far, says Lim.

As activity heats up in the sector, the guessing game on who will buy who, no doubt, is set to continue.

Luxury sector in Phuket and Samui expected to see foreign demand returning

Chandara - a private residence on Surin Beach in Phuket.

Thailand’s structural engineering design consultancy Warnes Associates believes that Phuket and   Samui luxury property markets will remain attractive to foreign investors in the coming years.

The company’s director Vanich Nopnirapath was confident that foreign demand would continue to drive property developers to launch more projects, especially in the high-end segment.

He said: “During this time of global economic instability, investment will continue to flow into emerging markets such as Thailand. Foreign buyers, who are looking for long-term investment, tend to put their money into property as it helps reduce risks from fluctuating currency exchange rates”.

Meanwhile, the high-end market and long-term investors such as hotel owners are now feeling less angst from domestic political instability.

According to Vanich, the company has managed to generate a total design fee revenue of THB100 million, 70 per cent of which come from residential and hotel projects in Phuket and Samui, while the rest comes from high-rise developments in Bangkok.

“The overall Phuket, Samui, and Bangkok markets have already reached maturity. We will see only  slight growth over the next five years,” he added.

As reported in Bangkok Post newspaper, the company will maintain its focus on its three original markets, particularly Phuket and Samui, where the markets are not so much competitive and prospects for high-end properties remain high.

Established in 1999, the company currently has six ongoing projects in Bangkok, three hotels and 20 private luxury residences including a 10,000-square-metre house for a European client from Dubai in Phuket. It also has ongoing hotel projects in India and Cambodia.

UK rents expected to rise in 2011

Individuals with buy-to-let property in the UK will be encouraged to hear that rents in the country are expected to rise next year. According to specialist residential letting agent Belvoir, high demand for homes combined with the inability of potential property owners to get loans will play a part in the increase. Dorian Gonsalves, managing director of the organisation, is optimistic about the future for the buy-to-let market as the impact of the comprehensive spending review takes hold. He explained that the reasons for the increase in rents which have been seen this year are a result of the continued national shortage of rental properties and constantly-increasing demand from tenants. "The exceptional economic conditions that we are currently experiencing are predicted to continue for the foreseeable future. Potential homeowners will continue to have difficulties obtaining mortgages and saving for a deposit," he said. "With an estimated 490,000 public sector job cuts planned, the residential sales market is bracing itself to face another dip."

RM8bil spill-over effects from RM2.7bil Penang Sentral

A general view of the Penang Sentral project’s first phase

GEORGE TOWN: The RM2.7bil Penang Sentral project in Butterworth is expected to generate economic spill-over effects of about RM8bil when the entire project is completed 10 years from now.

Malaysian Resources Corp Bhd (MRCB) executive director Datuk Ahmad Zaki Zahid said at a press conference that work on the first phase, comprising an integrated transportation hub with a retail component, would start next month.

The first phase, estimated to have a gross development value of at least RM400mil, is scheduled for completion by Dec 2013.

Work on the second phase is expected to start even before the completion of the first phase, he said. Work on the third and final phase is expected to start five years from now.

The second and third phases are commercial components, comprising a commercial hub, including office towers, serviced apartments, a hotel and waterfront amenities, scheduled for completion 10 years from now.

Zaki spoke after the Land Public Transport Commission chairman Tan Sri Syed Hamid Albar launched the Rapid Penang I Planner logo.

In May this year, MRCB Utama Sdn Bhd project manager (project/property) Zamri Mat Zain had said that the first phase would miss the July 2011 completion deadline due to delays in land acquisition.

Zaki said construction of the first phase was likely to generate some 2,500 jobs. By the time the entire project is completed, some 15,000 jobs would be created, generating an economic spillover effect of about RM8bil, he said.

Ahmad Zaki added that the gross development value of RM2.7bil was a conservative figure, which was likely to increase next year.

The Penang Sentral project, developed by MRCB in partnership with Pelaburan Hartanah Bumiputera Bhd, is part of the Northern Corridor Economic Region initiative.

The two companies formed a joint-venture firm, called Penang Sentral Sdn Bhd, which would undertake the development of the transport and commercial hub.

MRCB Selborn Corp Sdn Bhd, a subsidiary of MRCB, has been appointed to manage the development, design, construction, completion and maintenance of Penang Sentral.

The transport hub is expected to cater to approximately 65 million passengers a year.

Meanwhile, LPTC chief executive officer Mohd Nur Ismal Kamal said that the commission would next month start to finalise the public transport policy for the country.

It will take nine months to finalise the policy, as the LPTC needs to assess the data collected from all over the country on the needs for public transportation in different towns and cities, he said.

We will then know what kind of public transport programme is needed for which towns and cities in the country, he said.

Singapore Property Prices Could Rise Again Despite Cooling Measures

Following the Monetary Authority of Singapore (MAS) decision to take further measures to cool real-estate prices, enough land to generate 14,300 private residential units has been released under the government land sales programme for the first half of 2011. However, a Financial Stability Review released by MAS afterward stated that low borrowing costs may cause property prices in the city-state economy to rise further if capital inflows persist at current levels.  

The central bank has warned that despite the cooling measures taken, transaction activity and prices could pick up again. Against this, the government will continue to focus on monitoring developments in the property market, and if required, establish additional measures to promote a sustainable property market.

With expectations of a sustained period of low interest rates, the MAS has warned that financial institutions may also be tempted to loosen lending standards to extend more loans, increasing the danger of overextended households and corporates when interest rates eventually rise.

While in another review following MAS’s decision to take more measures to cool real-estate prices, Chua Yang Liang, Head of Research South East Asia for Jones Lang Lasalle, stated, “Every city has their own policies, for Singapore we are not ruling out other measures that they could put in, but for now they continue to pump in the supply to keep sufficient supply to ensure prices are in check. Should prices continue to rise unabated, then of course they may continue to adopt further tightening measures on the demand side – loan to value ratio.”

In August, Singapore’s government asked banks to demand more upfront cash from home buyers with existing home loans. While the measures have had an effect, strong global liquidity and low interest rates have continued to fuel activity.

Watching the situation closely, analysts believe further government action will be necessary to rein in runaway growth.

Will there be more property mergers?

A major problem for Malaysian property companies is that there are not enough shares readily available for trading, something that foreign investors love, says an analyst

Some two years ago, an analyst remembers telling a cash-rich property group to buy rivals with land to take advantage of a weak stock market.

But worries over takeover issues led the group to buy land instead. In hindsight, it was a major opportunity lost.

Now, major listed property players in Malaysia are in a bind because three recent deals to create much bigger companies are likely to push them to do the same if they want to remain attractive to investors.

"They have no choice, some of them don't want to be off the radar screen of investors," said CIMB research head Terence Wong.

The flurry of deals comes as the stock market hit record highs. On November 4, UEM Land Holdings Bhd offered RM1.4 billion to buy rival Sunrise Bhd, followed by news of a merger between Malaysian Resources Corp Bhd (MRCB) and IJM Land Bhd to create a group with a market value of RM7 billion. Then, Tan Sri Jeffrey Cheah proposed to combine his companies Sunway Holdings Bhd and Sunway City Bhd (SunCity) in a RM4.5 billion deal.

The first two deals reflect the government's intent to create bigger companies to lure more foreign investors to Malaysia's stock market, analysts said.

UEM Land is ultimately controlled by state investment arm Khazanah Nasional Bhd, while both MRCB and IJM Land have the Employees Provident Fund (EPF) as major shareholders. It is quite clear that the EPF is driving the merger, analysts said, as it seeks to develop the strategic and massive Rubber Research Institute land next to Kota Damansara, Selangor.

Both deals are also about securing expertise as the buyer is in a hurry to grow. UEM Land needs Sunrise for high-end property development and marketing, while EPF wants a developer that could build townships (IJM Land) as well as commercial projects (MRCB).

But the Sunway deal is more about the ability to fight for bigger jobs and address the liquidity issue. A major problem for Malaysian property companies is there are not enough shares readily available for trading, something that foreign investors love, said Maybank IB's analyst Wong Wei Sum.

This means the stock price will have a tough time catching up to its fair value. In SunCity's case, it has been trading at around RM4, while analysts tag its fair value at almost RM7.

"If you want to have better value, you go for the size," she said.

But some property executives contend there are downsides to becoming a bigger group.

"You could end up being a lumbering giant," one said. He cited how Mah Sing Group Bhd was able to buy some 25 hectares of land in Batu Ferringhi, Penang, for RM157 million. Bigger rivals had also bid for the land but Mah Sing was able to win as it moved faster than the competition.

Sunway and SunCity shares suspended on merger talks

SHARES of Sunway Holdings Bhd and Sunway City Bhd (SunCity) have been suspended from trading amid speculation that they may be merged.

The construction and property firms, controlled by Tan Sri Jeffrey Cheah, asked for their shares to be suspended from yesterday until 5pm today, pending a material announcement.

They will be merged into a new company via an exchange of shares and cash, Dow Jones newswires reported yesterday, citing an unnamed source.

The new company will continue to be controlled by Cheah, it added.
If a merger were to happen, it would be the third property merger to be announced this month.

Sunway Holdings was last traded at RM2.25 and SunCity, at RM4.49.

IJM Land-MRCB deal to create RM7b merger

IJM Land Bhd and Malaysian Resources Corp Bhd (MRCB) will merge to create a RM7 billion property company that will be the country's second largest after the recently-proposed UEM Land Bhd-Sunrise Bhd union.

IJM Land and MRCB sealed an initial deal on the proposed merger yesterday.

It is still unclear who will take the lead in the merger, but based on the two companies' shareholders fund size, IJM Land looks set to be in the driver's seat.

IJM Land shareholders' funds stood at RM1.65 billion as at March 31 2010, while MRCB's was about RM697.1 million as at December 31 2009.

IJM Land chairman Datuk Krishnan Tan said both parties had initiated the merger talks.
"We have common shareholders, but it stops there," Tan said at a press conference after sealing the initial agreement in Kuala Lumpur yesterday.

According to latest filings at Bursa Malaysia, Employees Provident Fund (EPF) owns an indirect stake of 62.47 per cent in IJM Land and about 42 per cent in MRCB.

The two parties are yet to come up with a definitive agreement, but have agreed that the merger will be done through a new company, in which IJM and MRCB will exchange shares, or a combination of shares and cash.

The price for the share swap has been fixed to curb speculation on the stocks.

Shares in IJM Land and MRCB will be exchanged based on RM3.65 per share for IJM Land and RM2.30 per share for MRCB.

This represents a 19 per cent premium and 7 per cent premium respectively to IJM Land's and MRCB's last traded share price on Monday.

A definitive agreement is expected to be sealed by December 14 this year, company executives said.

The merged entity will have total assets of RM3 billion and 3,600ha of landbank.

"With the significant increase in size, the merged group will be able to further strengthen its market leadership in the commercial and residential segments of the property market and compete more effectively in both local and international markets," MRCB chief executive officer Mohamed Razeek Hussain said.

The merged entity is expected to be listed on the local stock exchange by the middle of 2011.

Considering that the entity is slotted to be purely in property development, there is a possibility that MRCB would divest its interests in its other non-core businesses.

"Post-merger, there will be a rationalisation exercise... so we could divest or we could keep it (non-core businesses)," Razeek said.

MRCB's engineering and construction division, for example, owns the concessions for Duta-Ulu Kelang Expressway (Duke) and Eastern Dispersal Link Expressway (EDL) in Johor Baru.

It is also involved in several construction projects such as the construction of the traffic dispersal linkage at Jalan Tun Sambanthan for the development of Kuala Lumpur Sentral.

Property Rights Index ( PRI ) : How much a country's laws protect private property rights, and its government enforces those laws.

Singapore	90
Hong Kong	90
Japan	80
Taiwan	70
South Korea	70
Macau	60
Bhutan	60
Malaysia	55
India	50
Thailand	45
Sri Lanka	40
Georgia	40
Nepal	35
Philippines	30
Armenia	30
Cambodia	30
Indonesia	30
Kazakhstan	30
Maldives	30
Mongolia	30
Pakistan	30
Tajikistan	25
Kyrgyztan	25
Timor-Leste	20
Uzbekistan	20
Azerbaijan	20
Bangladesh	20
China	20
Vietnam	15
Laos	15
Turkmenistan	10
Myanmar	5
North Korea	5

 Asia: Property rights index

A subcomponent of the Index of Economic Freedom, the property rights index measures the degree to which a countrys laws protect private property rights, and the degree to which its government enforces those laws.

Higher scores are more desirable, i.e. property rights are better protected. Scores are from 0 to 100.

The index also assesses the likelihood that private property will be expropriated and analyzes the independence of the judiciary, the existence of corruption within the judiciary, and the ability of individuals and businesses to enforce contracts.

The Global Property Guide considers protection of property rights as a significant factor affecting the desirability of a residential real estate investment.

Source: The Heritage Foundation and the Wall Street Journal

Statistics in Asia. Asia has surprisingly good house price statistics, though the quality varies greatly. The ex-British colonies tend to have good house price statistics Hong Kong, Singapore and Malaysia all have excellent houses price time series, the best being Hong Kong, where the data is arguably richer than in the UK, since there are official rents statistics. However in the Indian sub-continent, only India has house price statistics, and this only in a new series, not yet available on the web.

Japan publishes no house price statistics. Its ex-colonies do better: Korea has a good house price time-series, and Taiwan also has one.

Indonesia has house price statistics, and so does China (both of questionable quality). In Thailand, the Bank of Thailand publishes a time-series. In the Philippines, Colliers produces residential property data.

No house-price time-series are produced in Vietnam, Cambodia, or Laos.