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Tuesday, August 31, 2010

Sime re-looks property joint ventures

PETALING JAYA: Sime Darby Bhd is taking a re-look at some of its property joint ventures and, where possible, is seeking to unwind out of ventures that do not create maximum value for itself. It is also in no hurry to list its Indonesian plantation arm, as was earlier speculated, preferring to enhance efficiencies before such an exercise.

“Sime Darby periodically reviews investment projects including joint ventures to ensure that they are still in line with the group’s strategic objectives and that the projects are giving Sime Darby the maximum val ue,” Sime Darby said in an email reply to questions from StarBiz.

When asked if Sime Darby would cease to enter into new property joint ventures, it said it “will still consider forming joint ventures with reputable players as long as the value creation from these ventures exceed that which would have been created by Sime Darby on its own and meets our targeted returns. Furthermore, such ventures must be able to enhance our own capabilities.”

On the listing of its Indonesian plantation arm, Sime Darby said: “The group is still currently focused on enhancing its operational efficiencies in its plantations division and would only consider unlocking its asset value via a listing process after it has fully enhanced the yield potential of its estate and mill operations.”

Earlier this year, it had been speculated that Sime Darby was planning a listing of its Indonesian plantations on the Jakarta Stock Exchange next year.

Following the mega merger that completed in November 2007, Sime Darby inherited Kumpulan Guthrie and Golden Hope’s Indonesian plantations.

Sime Darby has more than 200,000 ha of planted area in Indonesia.

However, it is understood that CEO Datuk Mohd Bakke Salleh is not in a hurry to pursue such a listing, hoping to increase the yield from the plantations there in order to derive a better valuation before a listing is pursued.

According to reliable sources, some of Sime Darby’s property joint ventures that may be studied closely by Bakke and his team are believed to include the RM1bil development in Shah Alam with Sunrise Bhd and other ventures formed with the Brunsfield Group.

The 50:50 joint venture with Sunrise was inked in January to develop 21 acres in Bukit Jelutong to consist of retail, shopoffices, officesuites and serviced apartments.

The 60:40 joint ventures with the Brunsfield Group had been done earlier, since 2006, to develop property projects such as Subang Avenue, Oasis Damansara and the redevelopment of Oyster Cove, an exclusive waterfront resort on Australia’s Gold Coast.

These projects had been questioned before, on the basis that Sime Darby is likely to be able to extract more value if it carried out the developments itself.

Sime Darby’s property division enjoyed a 28% profit margin last year and some analysts said that the division could have reaped a much higher ma rgin. This is considering that its land cost is typically lower than that of most other property developers.

CIMB analyst Ivy Ng, in a note published yesterday, said that Sime Darby was relooking its property joint ventures. “

(Sime Darby’s) thinking is to review and unwind joint ventures where possible to maximise the property development profit of its valuable landbank. This is a departure from the previous management which planned to accelerate the development of the land through sale or joint venture.”

Ivy added: “The new CEO believes that Sime Darby has a strong property brand name and intends to build the group’s property expertise to encompass all the types of property development projects."

By The Star

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