Published November 1, 2008
Deal In Focus
Grabbing opportunities in uncertain times
YTL may step up its overseas forays and add to assets. By Pauline Ng

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(Kuala Lumpur)

BARGAIN HUNTERMr Yeoh only shops during crisis times, says an analyst of the YTL CEO's fail-safe recipe of buying prime properties at bargain prices
FOLLOWERS of YTL Corporation must have felt a sense of deja vu earlier this week when the Malaysian conglomerate said it had acquired a slice of prime Orchard Road real estate in Singapore at a hefty discount.
Demonstrating that he hasn't lost his penchant for spotting a good bargain during a major economic upheaval, group managing director Francis Yeoh Sock Ping said YTL had shelled out $285 million for 26 per cent of Macquarie Prime Reit (MP Reit) and a half-share of the holding company that manages it.
The purchase, from Australia's Macquarie Group at a 49 per cent discount to the Reit's net asset value, gives YTL ownership of $2.2 billion of prime retail and office space in Singapore, Japan and China, and comes a decade after it struck pay dirt buying fire-sale prime real estate in Kuala Lumpur.
'He only shops during crisis times,' an analyst who tracks the company said of Mr Yeoh's fail-safe recipe of taking over prime properties at bargain prices.
In 1997 during the Asian financial crisis, the opportunistic Mr Yeoh was quick to jump into the then-distressed Taiping Consolidated (now YTL Land), in the process landing himself three prime properties in the Kuala Lumpur city centre - shopping malls Starhill and Lot 10, plus the JW Marriot Hotel, and a valuable land bank on the outskirts of the city since developed to the tune of billions. At that time, YTL paid RM323 million (S$134.8 million).
Then, as now, the Yeoh family-controlled YTL demonstrated that having ready fire-power meant it could quickly ring up a sale when the 'Marked Down' sign went up.
Cash hoard
By way of its war chest, however, its MP Reit buy is small. The group has an RM11 billion cash hoard, having raised billions in the past few years, which it has yet to utilise.
Indeed, its MP Reit purchase is less than the $435 million the company paid towards the end of last year for the 30-year-old Westwood Apartments on Orchard Boulevard - the $2,525 per square foot per plot ratio (psf ppr) mark established in an uncertain property market raising eyebrows.
YTL's readiness earlier this year to fork out RM2,000 psf or almost a third more for a site in the Kuala Lumpur city centre area, on which it plans to build luxury apartments, also set tongues wagging.
'At certain times you have to pay market prices,' said Previndran Singhe, chief executive of Zerin Properties, noting Taiping Con and MP Reit buys 'don't come easy'.
When YTL has paid a premium for real estate, Mr Yeoh has shrugged it off by saying there will always be demand for good-quality homes.
In the MP Reit purchase, proceeds from YTL's US$300 million five-year guaranteed exchangeable bonds issued by a subsidiary in May last year will be used to fund the acquisition. Given bondholders receive 2.8 per cent yield to maturity, while MP Reit is expected to yield over 9 per cent next year, the deal will be yield-positive.
But the listed conglomerate, which has a group market cap in excess of RM15 billion, is more than property. Its diverse businesses include cement, utilities, technology and a stake in the Express Rail Link - a high-speed railway connecting Kuala Lumpur to the Kuala Lumpur International Airport.
It had hoped to use its rail expertise on a proposed RM11 billion bullet train linking Kuala Lumpur with Singapore, but that idea was canned by the Malaysian government on grounds the economic conditions were not right.
Many consider Mahathir Mohamad as giving YTL its biggest break in the early 1990s when, after repeated national power outages, the former prime minister roped in the private sector and awarded YTL a licence to build, operate and manage two gas-fired plants in Malaysia on terms critics still contend were overly generous.
The company was awarded the construction of the 7.2km suburban railway line between Sentul and Batu Caves for about half a billion ringgit in 2006. But major projects have since been harder to come by, though it certainly hasn't been for want of trying.
An attempt last year at a river-cleaning project for the government - reportedly to the tune of RM1 billion - came to naught, after YTL had hoped to use the expertise of its UK unit Wessex Water to showcase its abilities. YTL acquired Wessex on the cheap from Enron Corporation for US$1.8 billion in 2002 after the US company went bankrupt.
On the lookout
YTL's preference for regulated assets in developed countries is well known, and despite failures to secure tendered assets such as Senoko Power, it is expected to remain on the lookout for similar investment opportunities. In fact, RM9.4 billion - the bulk of the group's cash pile - is with subsidiary YTL Power International.
With local opportunities shrinking, YTL is expected to step up its overseas forays and add to existing assets in Australia, the UK - and now Singapore.
'In any event, they were one of the first public-listed companies to buy chunks of assets outside of Malaysia,' an analyst noted, adding it is a natural progression given foreign markets could be easier to penetrate insofar as deals are usually based on price and track record. In Malaysia, bumiputra equity requirements can sometimes play spoiler, she pointed out.
In view of the impending global recession and falling asset prices, YTL is likely not done for the year. In an interview last month, Mr Yeoh said he was looking forward to clinching a few deals this calendar year. 'I hope this is my opportunity to pick up a few prime properties around the world,' he said.
For now, given his intention to strengthen the Starhill franchise, MP Reit will be re-branded Starhill Global Reit once the deal is completed. A future merger of the Reit with YTL's Malaysian-listed Starhill Reit, which owns four prime properties in Kuala Lumpur's Golden Triangle, has not been ruled out.
What will be of further interest is what YTL does with the Reits. The merged entity could go for a dual listing on the Malaysian and Singapore exchanges, but then again it could opt for a sole listing on either.