GIC connection may have given Sunway a leg up

Purchase of Iskandar land for RM25 psf is cheaper than recent deals in the area

By PAULINE NG
IN KUALA LUMPUR

THE Government of Singapore Investment Corporation (GIC) is believed to have played a significant role in Sunway Bhd's acquisition of 691 acres of land in Iskandar Malaysia for RM745 million (S$305.1 million) or RM25 psf, a transaction viewed as beneficial since it is cheaper than recent land deals in the area.

Analysts were mainly upbeat about the move although somewhat taken aback by Sunway's aggressive foray into the special economic zone.

'We are positively surprised by the size of the land,' CIMB said in a report yesterday, noting that the plot in question is the biggest for property development in Medini to-date.

Another broker, Hwang DBS-Vickers, noted its prime location 'at the southern-most tip' of the node. With infrastructure mostly in place, it will take only five to 10 minutes to drive to the Second Link.

This makes its RM25 psf cost even more impressive, observed Hwang analyst Chong Tjen San, especially when compared to recent land deals of RM38-RM65 psf. 'In our view, GIC's 12 per cent stake in Sunway helped consummate this landmark deal,' he said.

Seen more as a partner now, GIC became a shareholder in the wake of the Asian financial crisis of 1997-98 when Sunway founder Jeffrey Cheah sold equity to raise cash. Mr Cheah remains the biggest shareholder, holding nearly 48 per cent.

Already established in the central and northern regions of peninsular Malaysia, Sunway's entry into the Medini zone - albeit in joint venture with Malaysian sovereign wealth fund Khazanah Nasional - will strengthen its presence in the south.

Moreover, its partnership with both GIC and Khazanah could prove advantageous to its planned mixed development. To be completed over 10 years with 65 per cent residential and 35 per cent commercial components, the project has an estimated gross development value of RM12 billion.

Mr Chong believes the implied pricing of RM400 psf for the residential portion - and some 15-20 per cent higher for the commercial portion - is conservative given its prime location. If earmarked as 'an internationally recognised low-density development with a plot ratio of 1x', it would amount to only a fifth of similar developments in Singapore.

Moreover, UEM Land's recent luxury condo sales saw much higher average prices of more than RM700 psf.

However, Sunway Iskandar is not without risks. The increasing number of developments in Medini - as well as in other parts of Iskandar - is a cause for some concern.

Sunway Iskandar would be located next to a RM3 billion wellness township mixed development on 210 acres at Medini Central by E&O, in joint venture with Khazanah and Temasek Holdings.

RHB Research also observed that the high-end projects would start at about the same time - end-2012 or early 2013 - and aim for the same target market - mainly foreign buyers. Competition will also come in the form of other Malaysian builders in Medini, including UEM Land, WCT and Bina Puri.

Under the deal with Khazanah, Sunway will own an initial 38 per cent of the joint venture company and by additional equity subscriptions increase its stake to 60 per cent in 54 months.