Tycoon land sales raise questions

A few tycoons are selling large swathes of their land in Malaysia, either directly or through companies they control. Could this be a sign of the times, in the sense that these businessmen are looking to cash out of an asset class that is set for a prolonged downturn?

“You get the feeling like these tycoons are reading the market and acting on it,” says one fund manager.

Just last month, Guocoland (M) Bhd, a company controlled by Tan Sri Quek Leng Chan said its associate company announced it was selling a large piece of land in Sepang to Petronas-owned Putrajaya Holdings Bhd.

Around RM116mil of the sales proceeds will be attributable to Guocoland, in which Quek has around 65% interest.

At around the same time, Tan Sri Lee Shin Cheng decided to sell 400 acres of his privately-owned land to IOI Properties Group Bhd for a whopping RM1.58bil.

Lee will be paid mostly in shares, nudging his stake up to 58.56% from 51.47% but will also be getting cash of around RM158mil from the sale.

Lee has since explained that the deal shows his belief in the long-term prospects of IOI Properties and that the land will enhance the prospects of the latter.

He also said that he would use the cash proceeds from the sale to buy more shares in IOI Properties. But some observers say his move, of putting his privately owned land into his listed company, can be read as a decision to not want to take the risk of holding this land in these troubling times, but rather move it into his listed company.

Another notable vendor of land in recent times is Tan Sri Danny Tan. Through his listed Tropicana Corp Bhd, he has sold more than RM1.5bil worth of land this year alone.

Tan also sought to sell a large piece of land in Gelang Patah Johor to Singapore-listed Albedo Ltd for which he would have assumed control via a reverse takeover.

That deal has since been aborted and it isn’t clear if Tan has sold that piece of land, which was valued at almost RM2bil at the time of the proposed deal.

Last year, Tan Sri Desmond Lim’s Global Oriental Bhd sold 15 acres of land in Seri Kembangan to Singapore incorporated Qingdao Investment Pte Ltd for RM142mil while in 2013, DRB Hicom Bhd, controlled by Tan Sri Syed Mokhtar divested close to 250 acres of land in Johor to Eco World Development Group Bhd for more than half a billion ringgit.

Most agressive

Eco World, majority owned by property magnate Tan Sri Liew Kee Sin, on the other hand, has been doing just the opposite.

The company stands out as possibly the most aggressive acquirer of land in Malaysia in recent times. In 2013, it paid DRB Hicom Bhd more than half a billion ringgit for 250 acres of land in Johor; then forked out RM471mil to Tropicana for 308 acres of Canal City land; RM800mil for 450 acres of land in Batu Kawan, Penang and lastly, RM1.18bil for 2198 acres in Ijok, Kuala Selangor.

Even some smaller property companies are selling -- Penang-based Ivory Properties Group Bhd is disposing of 21.78ha of freehold land in Penang to a little known firm called Jesselton Peak Sdn Bhd for RM150mil.

So are the recent sales by tycoons just a function of the normal market dynamics of buying and selling of land between parties in different cycles of their business? Many seem to think so.

Kuala Lumpur-based property consultant Previn Singhe says that the recent transactions are a function of demand and supply.

“These tycoons have land banked these pieces of land for years and are now capitalising on the increase in land values, at a time when some land starved developers are looking for land,” he says.

VPC Alliance (KL) Sdn Bhd chartered surveyor and director James Wong, speaking specifically about the IOI Properties deal with its major owner Lee, says this: “All public companies need to increase their land bank and IOI is one of them.

Strategic move

“He had first injected the first portion to develop IOI Resort City. Now that the township of IOI City is fairly mature, the injection of the remaining 400 acres at a premium price level is indeed a strategic move.”

In Tropicana’s case, the land divestments have been explained as a strategy for the company to reduce its gearing.

From the combined sales of its Canal City, Bukit Bintang and Tropicana City Mall land assets, Tropicana’s potential net gearing will fall to about 0.3 times from as high as 0.72 times previously.

Furthermore, as an analyst points out, these tycoons who are divesting land, are also very actively embarking on property projects in Malaysia.

Tropicana has a sales target of around RM1.5bil, largely from projects in the Klang Valley.

In Guocoland’s case, it is working on Damansara City, an integrated development with a gross development value of RM2.5bil, comprising two office blocks, two residential blocks, the 4.5-storey DC Mall and a hotel with more than 300 rooms.

The project is close to completion.

Then again, current market conditions have whittled down some of the plans of these developers.

In 2012, Guocoland had announced plans to develop the Sepang International Circuit City (SIC) with an eye-popping gross development value of RM48bil.

Part of that land has now been sold to Putrajaya Holdings and insiders reckon that the land has been earmarked for affordable housing projects.

The market will be watching closely the moves of other tycoon land owners, to get an idea of how challenging the property market is going to be. - By Risen Jayaseelan (The Star)