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Thursday, September 29, 2011

Entrepreneurial-driven property firms waning

Permodalan Nasional Bhd’s (PNB) proposed takeover of S P Setia Bhd has raised eyebrows and potentially marks the ebb of entrepreneurial-driven property firms.

S P Setia has come a long way since its founding in 1974 and it was not always smooth sailing for its captain Tan Sri Liew Kee Sin.

Leong still the majority owner of Mah Sing with a 35.2% stake.

Liew received flak when the company bought a large 3,900-acre (1,560ha) track of land in Shah Alam, bordering Klang, from See Hoy Chan Group in 2002.

However, he proved sceptics wrong when he turned that land into two award-winning townships — Setia Eco Park and Setia Alam. Liew had instantly turned the brand into priceless goodwill. In the process, he also lifted prices of neighbouring townships in Klang.

S P Setia helped spurt the NKVE-Setia Alam Link, which was followed by many more highway linkages, and scores of developers that have followed suit with planned community living concepts. For these and many other reasons, Liew is viewed not only as a prolific business figure, but an important contributor to the real estate community.

Now the table has turned on Liew, who was apparently caught off guard with PNB’s takeover move.

With the proposed takeover of S P Setia by PNB, it is uncertain whether Liew will be given a free hand to run the company.

One possible outcome is probably best summed up by a fund manager who said: “When PNB takes over, Liew is not the boss anymore. If I were Liew, I will cash out and build a business elsewhere.”

The fund manager added the takeover by PNB is not entirely a surprise given that the fund has been accumulating and holding the shares for a few years now.

He also noted that Liew made himself vulnerable to a buyout when he sold down his shareholding to the 11.26% level currently.

Indeed, the collective shareholding of government-linked and provident funds came up to about 47% prior to the takeover offer, but perhaps no one then batted an eyelid largely because the shareholdings were very fragmented.

PNB now needs to meet an acceptance level of 50% to push through its takeover proposal, and this could be achieved effortlessly if the Employees Provident Fund (EPF), which controls a 13.42% stake, and Kumpulan Wang Persaraan which holds another 5% accept the offer.

It is interesting to note in the event PNB consolidates its property firms, including S P Setia, the merged entity can possibly become the country’s largest property group by market capitalisation.

But in this case, bigger doesn’t always mean better, especially if S P Setia is run as a typical inhibited, bureaucratic and lowly empowered government-linked company.

This is the reason why some quarters are against the government’s takeover of entrepreneurial-driven firms like S P Setia.

While the government is seen as becoming a dominant player in the private property sector, it is also privatising its own parcels of land in strategic areas.

This include a 62.5-acre prime land in Mont’Kiara, which its swapped with the controversial RM628 million trade centre, the 495-acre Sungai Besi land and the 3,300-acre Rubber Research Institute land in Sungai Buloh.

That said, it is puzzling to see the government releasing more of its land to the private sector, just to see it taking over these companies that would benefit from the projects.

In Hong Kong or Singapore, the government’s role in property sector is to ensure steady release of land to avoid excessive speculation and ensure the availability of affordable housing for its citizens.

However, the government’s objective in buying into private developers here is unclear.

Some are of the view that the government here could be functioning as a ‘last resort’ buyer, especially since there has been little foreign merger and acquisition (M&A) interest in the local property sector.

There are those who argue that it is the attractive valuations of property firms here that make them a target for local funds who want to enhance returns.

Given that most of the private developers now have a major government-related shareholder, some speculate that government-linked companies (GLC) or funds have yet to hit the brakes on its acquisition drive just yet.

At Mah Sing Group Bhd, for instance, Koperasi Permodalan Felda Malaysia Bhd, PNB, EPF, Kumpulan Wang Persaraan and Valuecap Sdn Bhd collectively own a 20.8% stake.

However, it may be a difficult task to take over Mah Sing, which raised its profile after it landed the priced Pekeliling land rejuvenation project, as its managing director Tan Sri Leong Hoy Kum is still the majority owner with a 35.2% stake.

Another potential M&A target is IJM Land Bhd, owned by IJM Corp Bhd, which also has a large government-linked shareholder. This especially after the merger with Malaysian Resources Corporation Bhd (MRCB) fell through last year. It was speculated that it failed because neither could decide on who will lead the merged entity.

In fact, part of the rationale for MRCB-IJM Land merger was to give the merged entity an edge in developing the Rubber Research Institute land.

Late last year also saw the takeover of Sunrise Bhd by UEM Land Holdings Bhd, controlled by Khazanah Nasional Bhd. Sunrise was helmed by Datuk Tong Kooi Ong.

While there are many questions left unanswered in the government’s ultimate property game plan, it certainly looks like entrepreneurial-driven property firms here are on the wane.

By The EDGE Malaysia

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