In a filing with Bursa Malaysia today, Eco World said its wholly-owned subsidiary Paragon Pinnacle Sdn Bhd has signed five separate conditional sale and purchase agreements (SPAs) with four vendors for the proposed acquisition.
It expects the proposed acquisitions to be completed by the second quarter of 2016.
The indicative market value of the lands, as appraised by Henry Butcher Malaysia Sdn Bhd via its valuation letter on 21 September 2015, was RM1.1896 billion, hence the purchase price represents a discount of approximately 0.7% of the market value of the lands, said Eco World.
Eco World said it intends to develop the lands into a self-contained township with a potential total gross development value of approximately RM15 billion, based on preliminary management estimates.
According to the property developer, the proposed development is expected to be developed over a 15-year period.
“Paragon Pinnacle is currently in the initial stages of development planning and as such, is unable to ascertain the expected costs required for the development to be undertaken on the lands,” it added.
According to Eco World, the developments planned on the land comprise a:
- mixed eco-township named Eco Gardens (1,400 acres),
- an integrated and gated industrial hub Eco Business Park V (518 acres), and
- an affordable homes’ portion to be known as Laman Indah, which will be built on the remaining 280 acres.
The filing stated the lands are located in the north-west of Klang Valley and are approximately 45km from the Kuala Lumpur city centre and 40km from the Petaling Jaya city centre.
The lands are well connected to established suburban centres such as Kota Damansara, Shah Alam and Sungai Buloh via major roads — Jalan Batu Arang, Persiaran Mokhtar Dahari, Jalan Meru Tambahan and Jalan Kuala Selangor, as well as existing highways such as the LATAR Expressway, North-South Expressway and Guthrie Expressway.
“The accessibility to the lands is expected to be enhanced with new proposed expressways including the West Coast Expressway,” the filing added.
Major townships and developments within the vicinity of the acquired lands are HillPark Shah Alam, Bandar Saujana Utama, Puncak Alam township and Shah Alam 2 township, as well as a tertiary education institution, namely University Teknologi Mara (UiTM).
Other developments such as Kwasa Damansara, Denai Alam, Sunway Kayangan, Cahaya SPK and Elmina townships are located within a 10 kilometres radius from the lands.
Eco World said the proposed acquisitions will provide the group with sizeable tracts of lands in the North-Western growth corridor of the Klang Valley, enabling it to establish a dominant presence in this area with access to a new market catchment to complement its strong township positioning in the South-Western and South-Eastern corridors.
“The lands’ location in an emerging growth corridor with access to the ports and major suburban centres is ideal for the group to replicate the success it has achieved in Iskandar Malaysia,” it added.
On funding, Eco World said the earnest deposit was funded via internal funds whilst the balance is expected to be funded through a combination of internal funds, bank borrowings and/or equity funding.
“Nonetheless, the actual amount required by Eco World to fund the proposed acquisitions can only be determined at a later stage and the source of such funding will be decided after taking into consideration the gearing level of the group,” it added.
In this regard, Eco World also said it is looking at a partnership for growth business model, whereby it will invite like-minded institutional, private equity and/or corporate partners to co-invest and fund Paragon Pinnacle, which will result in a potential reduction of Eco World’s stake in Paragon Pinnacle.
This, in turn, will bring a corresponding reduction in its obligations to fund the proposed acquisitions.
“Under the business model, we intend to retain a minimum of 30% equity stake in Paragon Pinnacle to ensure that the group will continue to enjoy a meaningful share of the development profits,” it added.
The first SPA was entered between Paragon Pinnacle and Mujur Zaman Sdn Bhd (MZSB) for the proposed acquisition of 11 pieces of land in aggregate approximately 1,107.30 acres for RM578.81 million, translating into a price tag of RM12 per sq ft.
In the second SPA, Paragon Pinnacle is buying a piece of land measuring in aggregate approximately 86.35 acres for RM45.14 million or RM12 per sq ft from Ringgit Exotika Sdn Bhd.
The third SPA is with Liputan Canggih Sdn Bhd, from which Paragon Pinnacle is buying 10 pieces of land, measuring approximately 527.43 acres, for RM218.26 million or RM9.50 per sq ft.
The fourth SPA was with LBCN Development Sdn Bhd for the acquisition of a piece of land measuring approximately 270.81 acres for RM192.41 million, translating into RM16.31 per sq ft.
The final SPA, also with MZSB, was for the proposed acquisition of three pieces of land measuring approximately 206.51 acres for RM146.72 million or RM16.31 per sq ft.
“Barring any unforeseen circumstances, the proposed acquisitions are expected to be completed by the second quarter of 2016 (2Q16),” it said.
The current backdrop has prompted many Malaysian property developers to reduce sales targets, as factors including a weaker ringgit hit consumer sentiment. Analysts at CIMB Investment Bank Bhd said while they were concerned that Eco World's exercise would stretch its balance sheet, they also viewed the move as a long-term positive for the company.
“Unlike most of the other developers that have cut sales targets and turned cautious, Eco World is still taking advantage of landbanking opportunities and aggressively carrying out new launches.
“Surprisingly, the recent launch of Eco Meadows enjoyed overnight queues. This exemplifies Eco World’s strong execution capability. We view Eco World’s gumption positively,” CIMB Investment Bank wrote in a research report.
Kenanga Investment Bank Bhd said it was "longer-term positive" on Eco World's land buy, as long as the group was able to secure the right partners, and assumes an associate stake in the project with a minimum 30% stake in a special purpose vehicle.
“We believe this model is one of the best ways to grow their brand and future project earnings, without overtaxing their balance sheet. If they do take on a subsidiary stake in this project, we do not discount the possibility of cash calls, which would be dilutive to shareholders’ returns," Kenanga said.
News source: The Edge, 22 September 2015