Hydro Hotel Penang for sale

The four-star Hydro Hotel Penang in Batu Ferringhi is up for sale for an estimated RM100 million, sources say.

The property, previously known as Hydro Majestic Hotel and before that Ferringhi Beach Hotel, was bought by the Mah family of Penang in early 2006 from Asia Pacific Land Bhd.

The 350-room property, now 28 years old, was bought for RM43 million.

It is understood that Hydro Hotel underwent a RM20 million facelift after the acquisition.

The Mah family, whose activities include property development, has been in the hotel business for over 10 years, with hotels in Australia and China.

Nick Mah Siew Chean, the executive director of his family's group of companies which include the Mercure Majestic Hotel in Kunming, did not deny that the property was up for sale when contacted several weeks ago.

He said that it was willing to consider the sale if the price was right.

One source said that the owners had voiced their intention to sell the property almost a year ago and that several potential buyers had viewed it.

However, Business Times could not reach Nick yesterday.

A few years ago, the family bought the abandoned hotel building in Jalan Kia Peng, Kuala Lumpur, completed it and ran it as the Novotel Hydro Majestic. The hotel was later sold to Pulai Springs Bhd.

In April this year, Pulai Springs, of which Nick is the executive director, sold the Novotel Hydro Majestic to The Nomad Residences Sdn Bhd.

By Business Times (by Vasantha Ganesan)

KL, JB among Asia most expensive cities

SINGAPORE: Kuala Lumpur, Johor Baru and Georgetown are among the cities earning the reputation as most expensive in Asia, according to a latest cost living survey.

KL is ranked 38th, JB 40th and Georgetown 42nd, said the survey on the 50 most expensive cities in Asia carried out by ECA International for 2009.

Globally, KL is ranked 210, JB 216 and Georgetown 218.
ECA, the world's leading knowledge and solutions provider for international human resources professionals, said strong currencies were pushing up the cost of living in Asian locations.

It said Tokyo remained the most expensive city in Asia, due largely to the appreciation of the yen against other major currencies, and joining the Japanese capital in the region’s top ten are Beijing (ranked 5th) and Shanghai (6th) as well as Hong Kong (7th) and Singapore (10th).


ECA regional director for Asia, Lee Quane, said the strengthening of Asian currencies was the dominant factor contributing to the region being more expensive for visitors than it was 12 months ago.

He said during the period, the yuan continued to strengthen while the yen had appreciated by almost eight percent against the US dollar, and many western currencies, including sterling, the euro and the Swiss franc, had weakened.

ECA carries out a Cost of Living Survey twice a year comparing a basket of commonly purchased consumer goods and services in over 370 locations worldwide.

ECA said Singapore had moved into the top ten most expensive locations within the region in spite of its weakened currency.

"Price rises have not slowed down as much in Singapore as in other parts of Asia," Quane said, adding that its data showed that while the prices of goods and services in China and

Malaysia had increased at half last year’s pace, in Singapore the rate was down by just 25 per cent.

Furthermore, currencies of locations previously more expensive than Singapore, notably London, Stockholm and Istanbul, had depreciated at an even faster rate than the Singapore dollar, he said.

These factors had contributed to Singapore becoming more expensive for visitors than many of the other locations in the survey, Quane added.

ECA also said the depreciation of the ringgit had made the cost of living cheaper for assignees heading to Malaysia.

The Mongolian capital, Ulaanbaatar (ranked 51), is the cheapest location in Asia, with goods and services approximately a third of the cost there than when purchased in Tokyo.

Overall, the city of Luanda in Angola kept its rank as the most expensive city in the world followed by Tokyo, and Maseru, Lesotho is the cheapest.

By Bernama

Bitter pill to swallow for Penang developers

The Penang government's move to take a firm stand in deciding once and for all the fate of four property developers who were said to be affecting George Town's status on the World Heritage List is commendable.

By deciding that all development projects within the heritage core and buffer zones must stick to an 18m or five-storey height ruling ahead of a United Nations Educational, Scientific and Cultural Organisation (Unesco) meeting in Spain next week (where the George Town issue is to be discussed), shows that we have not ceded our "sovereignty" to the UN body in deciding how development in our country and cities should proceed.

For the four affected developers - Asian Global Business (AGB) Sdn Bhd, Boustead Holdings Sdn Bhd, Eastern & Oriental Sdn Bhd and the Low Yat Group - the final decision that they must adhere to is one which may be a bitter pill to swallow.

Four firms had approvals from the Penang Island Municipal Council for projects exceeding the 18m limit well ahead of the date when George Town got its place on the World Heritage List in July 2008.
AGB's project is the Pier Hub @ Weld Quay, while Boustead is developing the Boustead Royale Bintang Hotel behind the general post office in Lebuh Downing. Eastern & Oriental is building an extension to the E&O Hotel while Low Yat plans to build a 23-storey hotel on Jalan Sultan Ahmad Shah, both in the buffer zone.

It has not been an easy ride for these companies since last November, when a bombshell was dropped that their "offensive" projects were now going to be a likely reason for George Town to be de-listed from the prestigious heritage map.

Besides having to contend with nervous and irate bankers, along with an army of demanding shareholders, these companies also had to deal with many trying situations on the ground in Penang, including heritage and conservation activists who have been very vocal in protecting the heritage city's listing status.

Today's state government "inherited" the problems which came in approvals granted to the three companies by the former administration. The mind boggles at how the three companies could be allowed to circumvent the five-storey height restriction which that same government had crafted as part of its heritage guidelines when applying for listing status.

The previous administration must assume some measure of responsibility for the situation the three companies have found themselves in. The current state leadership is not entirely blame-free either, since they were instrumental in granting the green light to the Low Yat group to proceed with its high-rise project by simply following a precedent set for the three companies .

There should no longer be empty promises made to investors by saying that "everything can be settled" and then leave these companies to sort things out.

Local authorities like the municipal council must be empowered to make decisions with no political interference, if Penang is serious in wanting to continue rejuvenating itself as an investment destination of choice.

It is not known if there are major financial casualties yet on the four firms caused from the uncertainly of the past months and the fact that some will now have to scale down their projects, re-position their products or in the case of one, abort their plans altogether.

Looking ahead, there is now an urgent need for a clear-cut blueprint on how the four development projects and subsequent ones in the heritage city are to be carried out.

Transparency by all parties is also key if the state is serious in wanting to keep George Town's place on the heritage list. It is apparent that the state government has decided to take into consideration an extensive mission report which has been compiled by two Unesco experts who visited Penang recently.

Among them is a suggestion that Malaysia introduce new legal provisions for the protection and management of its World Heritage sites.

Apart from stating in no uncertain terms that the AGB and Boustead projects must be scaled down in height, the report also recommends that efforts be made to reduce the impact of the E&O and Low Yat projects which lie in the buffer zone.

The question now is: Since the state has more or less "resolved" the outstanding concerns of Unesco about George Town's heritage enclave, is there a necessity to be spending public funds and have two Penang Island Municipal Council officials flying to Seville in Spain this month to attend the Unesco Heritage Committee meeting?

Probably not.

By Business Times

RM3bil project in Mersing

MERSING: Radian Starfish Sdn Bhd will develop Laguna Marina, a RM3bil integrated development on the seafront of Mersing.

The development, which has received the Department of Environment approval, involves land reclamation of 809.37ha scheduled to start this year.

“The project is expected to take 10 years to complete,’’ Johor Mentri Besar Datuk Abdul Ghani Othman said.

He said this after the inaugural meeting of Johor’s Implementation and Coordination Committee (ICC) under the East Coast Economic Region (ECER) development master plan.

Ghani is also chairman of the ICC, which oversees the implementation of projects in Mersing which is part of the ECER, which also covers Pahang, Terengganu and Kelantan.

He said the waterfront development would consist of star-rated and boutique hotels, waterfront homes, a water theme park, convention centre, cultural centre, private medical centres as well as commercial and business areas.

He said Radian would build a jetty complex for a new ferry service that would operate 24 hours and able to handle large capacity vessels, as well as a fishing jetty.

Ghani declined to divulge any information about Radian, which he said was a local property developer.

“Soon-to-be-launched tourism-related projects as well as the planned infrastructure development will transform Mersing into an even more popular tourist destination,’’ he said.

Mersing is the gateway to islands such as Pulau Tengah, Pulau Sibu, Pulau Rawa and Pulau Tioman. It is also the main eco-tourism gateway for the Endau-Rompin National Park.

Ghani said the Federal Government had allocated some RM215mil under ECER for three infrastructure projects in Mersing this year.

These include RM200mil for the construction of a 68km coastal road linking Mersing to Kg Sedili, RM12mil for the upgrading of a 56km track between Kg Kahang and Endau-Rompin National Park, and conversion of the roundabout in Mersing town into a traffic light intersection.

By The Star (by Zazali Musa)

Group refinances loan for Singapore project

SINGAPORE: A consortium comprising City Developments (CityDev), Dubai World and El-Ad Group said yesterday it had successfully refinanced a US$1.2 billion (US$1 = RM3.52) loan to develop a commercial project in downtown Singapore.

The consortium will raise the new funds via a S$800 million (S$1 = RM2.41) syndicate loan and S$400 million in secured convertible notes, the South Beach consortium said in a statement.

Singapore-based CityDev, southeast Asia’s second-largest developer, will take up S$195 million of the convertible notes.

By Reuters

Sime Darby in talks for development project in China

KUALA LUMPUR: Sime Darby Bhd has been invited by the Weifang People's Government to participate in the development of an economic development zone (EDZ) near Weifang City.

"The company is in discussions with the Weifang People's Government regarding the planning and development of this EDZ which will focus on enhancing Malaysia-China economic cooperation," it said in a filing to Bursa Malaysia on June 9.

"Amongst others, Sime Darby will assist the Weifang government in identifying suitable Malaysian companies to invest in this EDZ."

The company's statement came following Prime Minister Datuk Seri Najib Razak's official visit to China last week during which he announced that the conglomerate had been offered a multi-billion dollar development project in the Weifang prefecture city in China.

By The EDGE Malaysia (by Surin Murugiah)

CapitaLand arranges credit lines of US$3.7b

SINGAPORE: CapitaLand, South-East Asia’s biggest developer, said yesterday it has arranged for credit lines of up to 25 billion yuan (US$3.7bil) from two major Chinese banks to fund its China projects.

Bank of China and Industrial and Commercial Bank of China will provide the loans to the Singapore developer.

CapitaLand also said it “soft launched” a retail mall in Beijing on June 5 and that it would build an integrated development in Ningbo City called Raffles City Ningo that will comprise a mall, offices and serviced residences.

By Reuters

Maybank recommends Kinsteel, Lafarge

Investors should buy Malaysian steelmakers such as Kinsteel Bhd and cement producers including Lafarge Malayan Cement Bhd before construction projects accelerate next year, Maybank Investment Bank Bhd said.

The companies will be “prime beneficiaries of government infrastructure spending; the foundations are set for a recovery,” Maybank Investment said in a report today. “Projects are expected to gain momentum in 2010 after a year of awards in 2009.”

The government has unveiled two stimulus plans totaling RM67 billion (US$19 billion) to help revive growth as the nation nears its first recession in a decade. The economy may shrink as much as 5 per cent this year, the government said May 28, slashing its forecast in March for a contraction of 1 per cent at worst.

The central bank kept its key interest rate unchanged at 2 per cent last month, saying previous cuts and stimulus measures will contribute to a recovery later this year.
The cement industry should recover faster than steel as smaller-sized infrastructure and building projects “spark cement demand,” Maybank said.

By Bloomberg

Pavilion Group plans to expand to other places

The Pavilion Group is considering opportunities to replicate its success with the Pavilion Kuala Lumpur in other parts of the country and overseas.

Although the current soft market conditions may not make its expansion plans viable, owner Tan Sri Zainol Mahmood said the company was not ruling out having Pavilion developments elsewhere in the future.

“Having created a successful retail-focused integrated development model, we can confidently move into other new markets if the opportunity arises,” Zainol told StarBiz.

Pavilion KL is a privatised project by KL City Hall under its urban redevelopment programme to inject more life and wholesome activities into the city.

Developed by Kuala Lumpur Pavilion Sdn Bhd, a subsidiary of Urusharta Cemerlang Sdn Bhd, the four-part development is located on 12.6 acres at the intersection of Jalan Bukit Bintang and Jalan Raja Chulan.

It comprises the seven-storey Pavilion KL shopping centre, two luxury residential towers above the retail podium, a 19-storey corporate office block, and a proposed boutique hotel.

On the development concept, Zainol said the aim was to optimise on the project’s location on the last piece of prime real estate in the Bukit Bintang commercial district by adding more value to the project.

The project is located on the former Bukit Bintang Girls’ School premises. The school has since moved to Cheras.

“Pavilion KL has established itself as an iconic landmark and lifestyle destination for inner city living and shopping. It has certainly lived up to its status as the defining authority in city living, fashion, dining, and urban leisure,” adds Zainol, who is Urusharta Cemerlang chairman.

In its first year since opening for business in October 2007, the shopping centre recorded an estimated retail sales of RM1.56bil. With an average customer traffic of 83,000 a day, the shopping centre has to-date registered 48 million visitors.

With 1.37 million sq ft of net lettable space and 460 shops, Pavilion KL shopping centre was completed in September 2007. It is 100% tenanted and offers a mix of fashion, dining and urban leisure catering to the mid to upper-market segments.

Launched in 2004, the two blocks of Pavilion Residences were purchased by Kuwait Finance House at RM750 per sq ft.

Zainol said demand for high-end residences in the Golden Triangle was still good as more people were embracing inner city living.

The 19-storey office tower has also been completed and handed over to its owner, the KL City Hall.

Coming up next will be a six-star boutique hotel, Raffles Kuala Lumpur, targeted for opening in 2011. To be built at a cost of RM300mil, the hotel will offer between 180 and 200 suites.

On his market outlook, Zainol says: “Pavilion KL has established itself as an anchor of the community through its ‘totality approach’ to create a pedestrian-friendly shopping centre that in turn will transform KL into a ‘walk-able city’.

“We are happy with how the project has turned out and is upbeat of its potential.”

He added that plans were afoot to host more national and international events and promote Bukit Bintang as a must-see destination for tourists and locals.

By The Star (by Angie Ng)

Gurney Plaza plans budget hotel near shopping mall

GURNEY Plaza Sdn Bhd, via subsidiary G Hotel Sdn Bhd, is planning its second hotel on Penang island.

The company, which owns the five-star G-Hotel fronting Penang's famous esplanade, Gurney Drive, is looking to build a budget-cum-boutique hotel near its existing property.

The proposed 204-room hotel will be sited on a 0.4ha plot and the company is budgeting between RM70 million and RM80 million for the project, Gurney Plaza Sdn Bhd director Phuah Choon Meng said.

"We are awaiting approval from the local authorities," he told Business Times in Penang.
Phuah said the proposed hotel is set to be completed by 2010. Its developers are aiming at the rise in visitors to Penang island, since George Town made it to Unesco's World Heritage List.

"This proposed hotel project will be good for the Penang since we will be able to generate new jobs and more business for contractors and suppliers," he said.

Phuah said the proposed hotel will front Jalan Kelawai in Pulau Tikus and is within walking distance to the Gurney Plaza shopping mall and Gurney Park Condominiums.

"We are hoping to offer an unusual lobby and decor for the new hotel," he added, "along the lines of G-Hotel."

G-Hotel was last year recognised by the International Real Estate Federation (Fiabci) the best 2008 Hotel Development category at the Malaysia Property Award.

Last week, it emerged first runner-up in the hotel category of the Fiabci Prix d'Excellence Awards 2009 international property awards.

By Business Times (by Marina Emmanuel)

SP Setia, DutaLand, Sime Darby up in early trade

KUALA LUMPUR: SP Setia Bhd, DutaLand Bhd and Sime Darby Bhd share prices rose in early trade today. The three companies had been in the limelight since late last week after the first two inked agreements with China-based parties while Sime Darby was reported to have been offered a multi-billion dollar project in China.

SP Setia had entered into a co-operation agreement with Hangzhou Ju Shen Construction Engineering Ltd to set up a JV to carry out a mixed property development in the province of Zhejiang, China.

At 10.55am, SP Setia was up 4 sen to RM4.22 with 71,200 shares done.

The co-operation agreement marks the company's first foray into China, and its third venture overseas after Vietnam where it is developing Eco-Lakes at MyPhuoc Industrial, 42km north of Ho Chi Minh City and EcoXanh at Saigon Hi-Tech Park in District 9 of Ho Chi Minh City.

Meanwhile, DutaLand Bhd rose 10 sen to 72.5 sen with 20.3 million shares traded at 10.55am.

DutaLand inked an MoU with China-Boda Group to jointly develop two pieces of land in Hebei province, China and in Iskandar Regional Development Malaysia.

Meanwhile, Sime Darby added 15 sen to RM7.10 with 1.38 million shares done.

Sime Darby Bhd has been offered a multi-billion dollar development project in the Weifang prefecture city in China. The project, covering almost 700 sq km, will be one of the biggest ventures ever undertaken by a foreign company in China.

By The EDGE Malaysia (by Surin Murugiah)

SP Setia, DutaLand hit 52-week high

KUALA LUMPUR: Setia Bhd and DutaLand Bhd, which inked separate deals with China-based parties last week, rose to their 52-week high respectively today.

SP Setia rose to a high of RM4.24 before easing to RM41.8 as at 3.25pm, while DutaLand jumped to 77 sen before easing to 74 sen. DutaLand was among the most actively traded stocks with 32.9 million shares done.

SP Setia had entered into a co-operation agreement with Hangzhou Ju Shen Construction Engineering Ltd to set up a JV to carry out a mixed property development in the province of Zhejiang, China.

The co-operation agreement marks the company's first foray into China, and its third venture overseas after Vietnam where it is developing Eco-Lakes at MyPhuoc Industrial, 42km north of Ho Chi Minh City and EcoXanh at Saigon Hi-Tech Park in District 9 of Ho Chi Minh City.

DutaLand inked an MoU with China-Boda Group to jointly develop two pieces of land in Hebei province, China and in Iskandar Regional Development in Malaysia.

By The EDGE Malaysia (by Surin Murugiah)

Royale Chulan on track to hit occupancy target

The Royale Chulan Kuala Lumpur is on track to achieve 60 per cent occupancy at an average room rate of RM350 a night by December 2009.

The five-star property is expecting double-digit revenue growth or more than RM10 million in sales, general manager Leo Kuscher told Business Times in Kuala Lumpur recently.

The Royale Chulan, wholly-owned by the Armed Forces Fund Board (LTAT), was built for over RM200 million in two years.

Located on Jalan Conlay, it features a 300-room hotel with nine food outlets, 15 meeting rooms and a 1,000 capacity ballroom and 102 serviced apartments.
Kuscher said he is anticipating to recover the investments in five years depending on market conditions.

Since its soft opening in April, it has achieved 30 per cent occupancy.

Kuscher said he is targeting 45 per cent occupancy by end July.

"We have forward bookings for international conferences in July. According to our plan, we are already doing what we want to achieve. We are expecting a certain percentage of business from rival hotels riding on our legacy," Kuscher said.

The Royale Chulan is expecting 60 per cent of its income from the local market and 40 per cent from the Middle East, Europe and Asia Pacific.

The property will focus on three segments - corporate, leisure, and meeting, incentive, convention and exhibition.

Kuscher said it will spend 5 per cent of its revenue on marketing and promotions to be visible globally.

He is aiming to turn The Royale Chulan into a "must visit attraction" and an icon in Kuala Lumpur.

The property has elements of Malaysia's unique architecture with Terengganu influences.

Handcrafted wooden design elements are discretely located throughout the hotel. Carved wooden features were incorporated to enable circulation of the air and to keep the interiors of buildings cool. These carved pieces of timber also enable filtered light into the buildings. A dominant feature of the property is its glassed-in courtyard conservatory.

"There are challenges to run the hotel and serviced apartments in this slow economy. But a challenge is always nice especially when you are working for an excellent hotel. We have to market it to the world and sell it accordingly," Kuscher said.

The Royale Chulan, which will employ 450 people by December, is operated by Boustead Hotels & Resorts Sdn Bhd, a wholly-owned subsidiary of Boustead Holdings Bhd, which is majority owned by LTAT.

Boustead Hotels and Resorts has a collection of four-star properties such as The Royale Bintang Kuala Lumpur, The Royale Bintang The Curve, The Royale Bintang Resort and Spa Seremban, The Royale Bintang Penang (opening this year) and The Royale Bintang Surian The Curve (opening in 2010).

By Business Times (by Sharen Kaur)

Royale Chulan -- 5-star experience at half the normal rates

The Royale Chulan Kuala Lumpur may be the most expensive hotel in the Klang Valley but it is offering services and facilities of superior quality in tandem with its five-star rating.

Its rooms are priced at RM700 a night and the Royale suite at RM9,000.

As the hotel opened only in April, it is offering introductory rates now, which halve the price of the rooms.

For the serviced apartments, a studio unit is being offered at RM8,000 while a two-bedroom apartment is going for RM9,000.
The apartments are luxuriously furnished with sizable living and dining rooms and a well-equipped kitchen.

"We will launch a royalty programme next month to drive sales at The Royale Chulan. The royalty programme will give people a return on their investment. At times like this, people are looking for the best deal and we want to give them that," its general manager Leo Kuscher said.

Kuscher said he has no qualms running the hotel and serviced apartments although the world is in a depressed mood.

He believes there will be growth which will be accelerated by good service command and attitude from its staff and having facilities at par with international standards.

"If you want to be successful in today's business, you must offer excellent services. You must have passion which should be infectious to show that you are really dedicated and are totally immersed in every single detail of the property," Kuscher said.

The Austrian-born has been in the hospitality industry for 40 years and has gained a reputation for branding hotels and turning them around.

An example is The Royal Adelphi Seremban in Negri Sembilan, which he rebranded into a Royale Bintang property within three months.

When he was the general manager at The Andaman Langkawi, he repositioned the four-star property into a five-star super deluxe hotel and into one of Asia's best resorts through continuous service improvements.

Kuscher first came to Malaysia in 1984 where he served as the executive assistant manager of Holiday Inn Kuching in Sarawak.

He joined The Prince Hotel (now known as Melia Hotel) in 1986 as general manager and left for Hong Kong in 1988 to join The Regal Meridien Hotel in Kowloon as its resident manager.

He then moved to the Philippines and transformed Manila Hilton into Manila Pavilion, Manila's largest casino hotel, in 1989.

Kuscher returned to Malaysia in 1990 and joined The Crown Princess Kuala Lumpur before moving on to become the operations director for Federal Hotels International.

Kuscher was running The Royale Bintang Kuala Lumpur in March 2006. He had pushed this four-star property to achieve 86 per cent occupancy and average room rates of RM169 for November 2007.

By Business Times

Mah Sing encouraged by good sales of Southbay property

An artist’s impression of the bungalow unit to be launched by Mah Sing in Batu Maung.

GEORGE TOWN: Mah Sing Group Bhd is bringing forward to the next two to three months the launch of its bungalows for the RM1.35bil Southbay Penang mixed development project in Batu Maung.

The 76 bungalows, with an estimated gross sales value of RM200mil, were originally targeted for launch at year-end, chief operating officer Ng Heng Phai told StarBizWeek.

However, having sold 150 or about 75% of the first batch of 200 three-storey link houses in the first week of launch last month, Mah Sing decided to introduce the bungalows earlier, he said.

The units are priced from RM795,000 and sales have since reached 85% for the phase which has an estimated gross sales value of RM200mil.

“We expect the value of the link houses to appreciate by 15% before year-end,” Ng said.

With built-up areas ranging between 5,000 and 8,000 sq ft, the bungalows will be priced around RM3mil each.

“The bungalow project, known as Legenda, is a guarded and gated scheme on a 27.8-acre site,” Ng said.

Ng said the group was preparing to launch the RM900mil commercial component, Southbay City, on a 34.5-acre site at year-end.

“We plan to develop sea-fronting retail outlets. The commercial component will increase the value of the residential properties in the project,” he said.

Ng said the group was working with agents to market Southbay Penang overseas.

To be developed over five to seven years, Southbay Penang is Mah Sing’s biggest project to date.

“Our projects in the country have a gross sales value of about RM3.8bil, of which RM1.35bil will come from the Southbay Penang project,” Ng said.

“The projects in the Klang Valley and Johor Baru will contribute about RM1.6bil and RM800mil respectively,” he added.

“The bulk of Southbay Penang’s contribution should come in when we launch Southbay City,” he said.

By The Star

E&O gearing up for next economic upturn

A handout image of Seri Tanjung Pinang project. E&O will be launching two new projects this year.

Eastern & Oriental Bhd (E&O) group is positioning itself to capitalise on opportunities in the next economic upturn including holding back launches to time for the upturn as well as raising capital that could be used to make opportunistic acquisitions.

The group’s RM200mil proposed 1-for-2 rights of irredeemable convertible secured loan stocks (ICSLS) 2009/2019 in late May is part of a two-pronged strategy to raise a total of RM500mil.

Executive director Eric Chan told StarBizWeek in an interview that the RM500mil would strengthen the company’s balance sheet in the next two to three years “by increasing cashflow and lowering gearing.”

The money will be used to fund developments, opportunistic acquisitions such as strategic acquisitions of landbank, and general working capital and repayment of financial obligations, etc.

The suddenness of the economic downturn in 2008 and 2009 had impacted E&O’s business and strategies Chan said.

Under current weaker conditions, the premium niche property developer is focused on “managing the balance sheet rather than being only profit and loss-driven”.

In addition to the RM200mil from the rights issue expected to be completed by August, RM300mil will be raised from the disposal of non-strategic landbanks and cash generated from new launches.

To date, it has also raised just under RM100mil from the disposal of what it considers to be non-strategic landbanks including a property in the Semantan area of Kuala Lumpur from the unwinding of a joint venture with Selangor Properties.

As part of its “value preservation” strategy, E&O has been holding off launches and will only put these developments worth RM4bil in gross development value (GDV) into the market when the economy and demand for high-end property recover.

In fact, the company had not launched aggressively in 2007 and 2008, which had shown in its 2009 financial results, given that there was an average two-year lag for the value of launches to be manifested in earnings, said Chan.

The group has announced an unaudited RM37.7mil net loss for the financial year ended March 31, 2009 (FY09) compared with a net profit of RM128.9mil for FY08.

“But the value of the developments are intact. They are deferred but not cancelled,” Chan said referring to the RM4bil GDV of held-back projects.

The RM4bil appears to be readily realisable when the market recovers.

“These are ready-to-market projects. We have acquired all the approvals,” he said, adding that approvals for property development launches could take about a year.

But the upturn may be sooner than expected.

The company expects to take two to three years to reduce the high gearing it has built up during the downturn. Meanwhile, it is launching two projects this year.

These projects are the 440-unit St Mary service apartments in Kuala Lumpur near the Weld next month and 1,000 units of Seri Tanjung Pinang condos in September. The company expects these projects to bring RM600mil into the company’s coffers.

The estimated RM200mil from the rights issue, by E&O’s calculations, will bring down the company’s gearing from 0.8 times to 0.46 times, while the RM300mil from landbank disposal and new launches will bring gearing down to a negligible 0.16 times.

HwangDBS Vickers which maintains a “hold” call on the counter in its latest report says of the two expected launches, “We expect the takeup to be slow due to high incoming supply of high-end condos especially around KLCC over the next two to three years.

“However, St Mary’s initial launch will likely be priced at an attractive RM800 per sq ft versus the KLCC secondary market price of RM800 to RM950 per sq ft, along with a 10/90 financing scheme.”

But at the same time, the research house has raised its FY10 and FY11 earnings forecasts of the company by 6% to 18% after factoring in stronger takeups with property sales showing signs of bottoming out on anecdotal evidence.

On the rights issue last month, HwangDBS says that E&O will have more working capital to resume launches in the second half of 2009 from the estimated RM2.4bil GDV, which should help to replenish dwindling unbilled sales at RM150mil currently.

The research house also opines that concerns about the company’s high gearing “will abate” and calculates that gearing will improve to 0.53 times from 0.83 times at present.

“The funds raised will also ease pressure to sell assets at distressed prices – E&O still hopes to raise RM300mil from the disposal of non-strategic landbank,” it says.

By The Star (by LOONG TSE MIN)

Banks on why loan rates lag cut in key interest rate

FOLLOWING the reduction in the overnight policy rate (OPR) by 75 basis points to 2.5%, which subsequently went to down to 2%, banks have adjusted their mortgage rates to competitive levels that are below their base lending rates (BLRs).

A few aggressive ones had initiated the reduction in mortgage rates to as low as 3.2%–3.3% while others took some time to catch up. This led to questions on why some banks were not reducing their mortgage rates fast enough.

Banks surveyed by StarBizWeek say changes to loan rates were usually not done immediately after every revision of the OPR, as they had to complete several internal processes to consider the impact of any change.

Most banks, nonetheless, would revise their financing rates within a week after the central bank announced the changes to OPR which has been kept unchanged at 2% since February.

OCBC Bank (M) Bhd director and CEO Jeffrey Chew said while banks tried to respond as quickly as possible, they needed to balance all the factors involved in the pricing equation.

“We need to evaluate our overall strategy for running the business, cost of funds, marketing strategy for attracting new customers while retaining the existing ones, as well as sales and administration costs,” he says.

Alliance Bank Malaysia Bhd group CEO Datuk Bridget Lai says factors determining the pricing structure included the customer’s risk profile, collateral, loan tenure and market competition.

Ultimately, the bank’s goals are to protect the quality of its asset portfolio while driving up productivity, efficiency and service levels, she says.

RHB Bank head of retail banking Renzo Viegas says that upon an announcement of a cut in the OPR, the bank’s central treasury together with related business segments in the group would immediately carry out their analysis, following which the new rates would be keyed into the system.

“Changes are overnight with all the loans that have rates pegged to the BLR revised. Concurrently, the website and all point-of-sale interactions within the bank are also updated,” he adds.

While floating rates pegged to the BLR are easy to revise, given that adjustment is automatic, he says the fixed rate module is tougher due to profitability issues, as these fixed rates are already built into the pricing structure.

Both RHB’s conventional and Islamic banks revised their respective lending rates within a week after Bank Negara’s monetary policy change.

According to RHB Islamic Bank head of asset based finance group Zulkhairi Zabiri, property developers’ discounts, coupled with banks’ cheap financing, were attracting individuals to buy properties.

“We do see an upward trend in demand for this segment and we observe a similar trend for commercial properties,” he says.

Chew of OCBC concurs. He says companies are less sensitive to changes in the cost of funds as their need for loans depended more on demand for their products and services.

“If there’s strong demand, businesses tend not to mind slight increases in interest costs. The factors include credit availability, turnaround time and service delivery,” he says.

This was evident last year when most banks recorded significant loans growth despite the BLR being at a higher rate of 6.5%, as the business environment was conducive with individuals spending and companies investing.

By The Star (by Yeow Pooi Ling and Laalitha Hunt)

Going back to basics a better option

Although the rapid pace of expansion and the sheer size of companies have been idolised by many western economies, the latest global financial debacle that brought down many industry giants in the financial, automobile and manufacturing sectors, shows that being big does not necessarily mean greater efficiency and profitability.

On the contrary, many of the companies that are still staying afloat and have strong financial standing are the ones that have not gone on an overzealous expansion spree to flex their muscles around the various continents.

Instead of diversifying into various business sectors to prove their mettle, these companies have remained steadfast in what they do best and stayed focused on their areas of competencies.

By keeping to what they know best and not being caught up by the “borrowing and expanding game” that decapacitated most of the felled giants, it goes to show that companies should not expand just for the sake of expanding, or in the name of globalisation.

It looks like globalisation will have to take a back seat for a while as many of these “once huge” companies and conglomerates are still struggling for their survival.

The latest shake-up of the global economic and financial systems should be taken as a lesson for Malaysian corporations to avoid the temptation of growing too big, too fast – the path travelled by their western brethrens and one of the major contributors to the current financial quagmire.

Luckily for Malaysia, many of its companies, including property developers, have not gone overboard to expand into unknown territories overseas. Those who have done so have limited their exposure to markets that they are familiar with and only after due market intelligence studies are conducted.

Of course, there are some companies that have been “caught” after paying premium prices to take over some local companies for their offshore expansion. There have also been instances of property companies which went on a huge expansion binge by leveraging on bank borrowings to acquire huge landbanks and got caught when they bet on the wrong growth corridors.

These companies are still paying heavily for their mistakes after investors deserted their stocks.

Turning the table on these quick-fix expansion model and going back to the organic growth model that values prudence, manageability and efficiency looks like a better option these days.

Nurturing a company by focusing on its core competitive advantages and growing organically by harnessing its human resource expertise will be much healthier than blindly expanding into new areas without the right market knowledge.

Good property companies should be trendsetters in terms of product quality, innovative designs, pricing and service excellence.

Having a strong brand name and proven business model will certainly add value to a property company and raise its attractiveness in the eyes of buyers and investors, if the company is listed.

Property buyers are increasingly savvy these days and are more careful of which developers they buy from to ensure good quality products and timely delivery of their property.

Developers that are reputable and well regarded for their product quality and timely delivery usually have a strong following of loyal buyers.

Moreover, projects that are offered by these developers usually command a higher price premium over projects by other developers.

Although much effort and hard work are needed to build a strong reputation, all will be worthwhile at the end of the day when these efforts are translated into loyal buyers and good product take-up rate.

Those who have made it will be the ones to survive any bad glitches thrown their way, like the latest one that is brought about by the global financial meltdown.

Athough the market is likely to remain lacklustre over the next few months before it bottoms out later this year, industry players should harness their skills and competitiveness to prepare for the market upturn.

● Deputy news editor Angie Ng believes much can still be done by property players to lift the industry standards further and for them to vie for a bigger share of the global real estate market.

By The Star (by Angie Ng)

Builders press for stamp duty exemption

CONSTRUCTION players want the government to immediately exempt imposition of the new stamp duty as the sector is grappling with escalating cost.

"We cannot wait any longer. The matter has become very serious now," Master Builders Association of Malaysia (MBAM) president Ng Kee Leen told newsmen in Kuala Lumpur yesterday.

MBAM said the exemption should be for all service agreements including construction contracts of all types including consultancy contracts, operations and maintenance contracts, maintenance contract projects, and facilities management services contracts.

MBAM feels that construction contracts are not service agreements and therefore do not fall within the scope of "services" under Item 22 of the First Schedule of the Stamp Duty Act 1949.
On Wednesday, Ng told Business Times that the amendment to the Stamp Duty Act, which came into effect on January 1 2009, has resulted in construction cost rising up by 1-2 per cent.

As a result, ordinary service agreements are slapped with 0.5 per cent stamp duty of the total contract value, whereas previously the stamp duty on an ordinary service agreement was fixed at only RM10.

MBAM along with other construction players including architects and consultants hope to voice their grievance during their annual dialogue with the Ministry of Finance on June 11 2009.

He said a memorandum was forwarded to the Ministry of Finance in April but no action has been taken so far.

Ng said the combined effect of stamping all agreements at 0.5 per cent of a contract value is exponential since the nature of the construction industry has multiple levels of subcontrac-ting works.

"MBAM believes that the imposition of the additional stamp duty on construction contracts is inconsistent and counter productive to the policy and objectives set out in the stimulus package plan to help drive the economy out of the turbulent financial crisis by boosting the construction industry which is recognised as an important growth engine in the economy," Ng said.

He said many construction contracts to be executed were negotiated or awarded prior to the amendment where the project costing did not include the additional stamp duty.

"Imposing such much heavier stamp duty may cause serious cash flow constraints and reduced margins for the contractors and consultants in an already highly competitive market and therefore impact the viability of projects committed," Ng added.

By Business Times (by Rupinder Singh)

SP Setia’s maiden China project

From left: Tan Sri Liew Kee Sin, Datuk Seri Najib Razak, Hangzhou Ju Shen Construction Engineering Ltd legal representative Hu Baifu and International Trade and Industry Minister Datuk Mustapa Mohamed at the agreement signing ceremony in Beijing

PETALING JAYA: SP Setia Bhd has marked its first foray into China’s property market by inking a co-operation agreement with Hangzhou Ju Shen Construction Engineering Ltd in Beijing, the company said in a statement.

The event was witnessed by Prime Minister Datuk Seri Najib Razak yesterday, who is in China on an official visit.

SP Setia president and chief executive officer Tan Sri Liew Kee Sin said the agreement would lead to the setting up of a joint-venture company to carry out a mixed property development project on a 25-acre site.

The land is located in the growth corridor of XiaoShan, Hangzhou in the Zhejiang province.

“The venture follows our first overseas foray into Vietnam in mid-2007 and is in line with our expansion to be an international property player,” Liew said in the statement.

By The Star